The Securities and Exchange Commission brought its third enforcement action against robo-advisers on Thursday, charging Emperor Investments, Inc. with making false and misleading marketing on its website and social media platforms about its performance and using paid bloggers to solicit U.S. investors without adequate disclosures.
Without admitting or denying the SEC’s findings, Emperor consented to a cease-and-desist order finding that it violated the antifraud provisions and will pay a $25,000 fine, according to the SEC.
“We should expect the SEC to pay more attention to robo-advisers, online investing platforms, and mobile investing applications going forward,” said Kurt Wolfe, an attorney at Quinn Emanuel Urquhart & Sullivan. “The misconduct alleged in this case is really just low hanging fruit. In the not too distant future, I think we’ll see the SEC take a closer look at how these firms deliver services.”
The SEC found that, from June 2018 until October 2019, Emperor stated that it had outperformed the market for the past 11 years when, in fact, the claim was based on modeled returns, and Emperor had been in operation for less than two years, during which time it underperformed the market. In its latest Form ADV filed September 26, 2019, Emperor reported assets under management of $621,000.
Emperor also allegedly paid bloggers, which were a significant source of Emperor’s new clients, for referrals without complying with cash solicitation disclosure and documentation requirements. The SEC alleges Emperor paid approximately $3,400 to these participating bloggers for referring new clients to Emperor and an additional $12,500 for blogger reviews.
“Emperor’s dissemination of false and misleading advertising and marketing materials and performance data, along with its failure to comply with requirements concerning the payment of bloggers for client referrals, was caused, in part, by its ineffective compliance program,” according to the SEC filing.
The Emperor Investments case pulls together threads that have seen in past SEC enforcement actions against robo-advisers including the 2018 charges against Wealthfront and Hedgeable: paying bloggers for referrals without disclosing the relationships, disseminating misleading marketing materials and performance data, and failing to implement adequate policies and procedures.
“The cases center on client communications, and really squeeze non-traditional advisory platforms into more traditional regulatory compliance buckets,” said Wolfe. “The staff isn’t yet testing the bounds of the securities laws or exploring innovative features of robo-advisory platforms.”
The case is an important reminder that advisers need to be careful when they include performance data in marketing materials, Wolfe said.
“It may be tempting to chart performance against competitors or a market benchmark, but for advisers with a relatively short track record — including many robo-advisers — it is critical to disclose the use of models or assumptions and make it abundantly clear if marketing materials do not reflect actual results,” he said.
From outstanding individuals to innovative organizations, find out who made the final shortlist for top honors at the IN awards, now in its second year.
Cresset's Susie Cranston is expecting an economic recession, but says her $65 billion RIA sees "great opportunity" to keep investing in a down market.
“There’s a big pull to alternative investments right now because of volatility of the stock market,” Kevin Gannon, CEO of Robert A. Stanger & Co., said.
Sellers shift focus: It's not about succession anymore.
Platform being adopted by independent-minded advisors who see insurance as a core pillar of their business.
RIAs face rising regulatory pressure in 2025. Forward-looking firms are responding with embedded technology, not more paperwork.
As inheritances are set to reshape client portfolios and next-gen heirs demand digital-first experiences, firms are retooling their wealth tech stacks and succession models in real time.
