SEC Fines 13 Advisers for Verification Failings (4 of 7)



On November 17th, Todd Cipperman spoke on the topic of "The Evolving Regulatory Landscape - Practical Insights for Compliance Officers" at a webinar co hosted by MyComplianceOffice and Cipperman Compliance Services LLC. This is the fourth post of a seven part series which will address some of the topics covered by Todd during the webinar. You can watch videos of that webinar here

The SEC fined 13 advisory firms a total of $2.2 Million for negligently relying on performance information provided by a third party product sponsor.  The SEC charges the firms with passing on performance advertising and information provided by the product sponsor without obtaining sufficient documentation or retaining the necessary records to verify the performance data.  The product sponsor has previously settled SEC charges that it utilized inflated back tested performance data.  The SEC charges violations of Rule 206(4)-1(a)(5), which prohibits an advisory firm from using marketing materials that contain any untrue statements.  The SEC’s Enforcement Director advised, “When an investment adviser echoes another firm’s performance claims in its own advertisements, it must verify the information first rather than merely accept it as fact.”  Another SEC official said its sweep continues.

OUR TAKE: Applying the “adoption theory” of disclosure to adviser marketing, the SEC has put advisers on notice that they must substantiate any performance claims made to clients, even if prepared and presented as third party information.  This may create significant compliance obligations on advisers that use third party products, no matter how large or reputable.

Author of post: Todd Cipperman, Cipperman Compliance Services LLC

This is the fourth post in our seven-part series following a webinar with Todd Cipperman on "The Evolving Regulatory Landscape - Practical Insights for Compliance Officers" . Subscribe to get notified of part 5, "SEC Official Encourages Competitive Whistleblowing and Their Lawyers (9/15/16)".

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