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SEC Brings Five Marketing Rule Cases Incorporating More Elements
Background:
- On April 12th, 2024, the U.S. Securities and Exchange Commission brought a package of five Enforcement1 cases focused on violations of the Marketing Rule, including requirements around hypothetical performance presentation.
- All the respondents in these cases were marketing hypothetical track records without appropriate policies and procedures to prevent broad dissemination.
- One of the respondents was charged with wider Marketing Rule violations, which could be viewed as an illustrative example of other ways in which the Marketing Rule can be applied in enforcement situations.
Key Takeaways:
- Limitations of “SEC Spotting”: Four of the five advisers undertook corrective action the same day the SEC published a Risk Alert announcing a Marketing Rule sweep on June 8th 2023. Although the remediating advisers received reduced penalties, this demonstrates the risk of focusing compliance programs too much on current SEC activities or hot topics. Most of the SEC’s agenda is not known in advance and by the time new SEC focus areas are discovered, it may be too late to remediate.
- The Rising Risk of Advertising: One of the advisers was charged with violations of additional provisions of the Marketing Rule including missing substantiation, statements that were not fair and balanced, and various violations of performance representation requirements. As more elements of the Marketing Rule are incorporated into enforcement cases, the risk of non-compliant marketing materials will rise exponentially.
Violations Table:
1 In the Matters of: Monex Asset Management, Inc., Bradesco Global Advisors, Inc., Insight Securities, Inc., Creditcorp Capital Advisors, LLC, Gea Sphere, LLC