SEC fines Massachusetts firm $75,000 for Marketing Rule violation
The SEC has fined a firm $75,000 for violating the Marketing Rule and recordkeeping violations, spurring the firms to implement greater compliance protocols.
Written by a human
In brief:
- The SEC has hit a Massachusetts registered investment adviser with a $75,000 penalty for Marketing Rule violations and recordkeeping failures
- The regulator is not backing down in its fight against misleading advertising and to protect consumers
- Firms need to ensure they’re leveraging the right solutions to compliantly capture and archive their marketing materials to meet Marketing Rule requirements
A Massachusetts-based investment adviser (RIA) has been fined $75,000 for violating the Securities and Exchange Commission’s (SEC) Marketing Rule.
The firm was found to have claimed to ‘refuse all conflicts of interest’ in an advertisement on its website, despite its own documentation acknowledging that it did, in fact, have such conflicts. The business also failed to maintain copies of its adverts, including those on its website, resulting in breaches of both the SEC’s Marketing Rule and recordkeeping requirements.
A matter of facts
The SEC’s Marketing Rule 206(4)-1(d)(1) prohibits RIAs from including any material statement of fact in an advertisement that the firm does not believe it will be able to verify upon demand. Here an advertisement refers to “any direct or indirect communication offering investment advisory services to prospective or current clients.” The SEC has a clear track record of multiple Marketing Rule enforcements since the rule came into force in 2022.
Alongside ensuring that advertising is not misleading, the SEC requires RIAs to meticulously preserve records related to marketing activities – something the firm also failed to deliver on.. While the RIA did in fact have a third party managing its website, it did not implement a contractual agreement to ensure that records of marketing and advertising materials were properly maintained or archived. To cap this off, the SEC also found that the firm had also failed to conduct an annual review of its compliance policies and procedures as required under the Advisers Act (Rule 206(4)-7) – demonstrating that compliance was not a priority for the RIA.
Alongside the financial penalty, the firm has consented to the SEC’s findings with no denial of the unlawful activity that took place, and has already taken several remedial steps, including:
- Removing the misleading advertisement
- Hiring a third-party vendor to assist with recordkeeping
- Hiring a new chief compliance officer (CCO)and a compliance consultant to conduct relevant training
Firms need to wake up
While the SEC has signalled a move away from a “regulation by enforcement” approach, firms need to be well aware that the Marketing Rule sits firmly within the scope of the regulator’s focus on consumer protection. We have seen a steady drumbeat of Marketing Rule enforcements over the last few years, and this latest fine indicates that the SEC will continue to hold up firms that potentially harm investors through misleadingly advertising their services and capabilities.
It is the responsibility of firms to apply proactive compliance practices to meet regulatory requirements, including:
- Ensuring strong compliance advocacy from the top down within firms, including hiring a CCO, to foster the right “tone from the top” and compliant culture within the business. Employee buy-in is essential for successful compliance, and it is important that processes and regulatory responsibilities are consistently reviews
- Implementing a trusted archiving and recordkeeping tool and integrating solutions to ensure advertising materials, including those on websites, are captured and secured in a compliant and easily accessible archive
In spite of reduced appetite from regulators for enforcement actions, firms must wake up to the fact that expectations around recordkeeping and the Marketing Rule haven’t lowered – and that they need to be getting the basics right to avoid financial and reputational damage.
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