Five firms hit in SEC marketing rule sweep

The SEC has reached settlements with five investment advisory firms, which will pay a collective $200,000 in penalties, after a targeted sweep discovered practices that breached its marketing rule.

GeaSphere, Bradesco Global Advisors, Credicorp Capital Advisors, InSight Securities, and Monex Asset Management faced allegations centered on their advertising practices, particularly concerning the use of hypothetical performance data.

In a statement, the SEC said these firms did not have adequate policies and procedures in place to ensure that the hypothetical performance information presented in their advertisements was pertinent to the financial situations and investment objectives of the targeted audiences. Those guardrails are a requirement under the marketing rule to protect investors from potentially misleading advertising.

The SEC said Bradesco Global Advisors, Credicorp Capital Advisors, InSight Securities, and Monex Asset Management were already taking steps to address those issues before being contacted by the Securities and Exchange Commission, which led to reduced penalties for these firms. The financial sanctions imposed varied from a $20,000 penalty each for Insight and Bradesco to $30,000 each for Monex and Credicorp, reflecting the steps they had taken to address the issues.

The SEC found more egregious violations from GeaSphere, including the dissemination of false and misleading statements in its advertisements, inability to substantiate claimed performance results, and failure to formalize agreements with endorsers.

GeaSphere’s violations extended beyond the marketing rule, involving record-keeping and compliance failures, as well as misleading performance claims to an investment company client that were included in the client’s prospectus. As a result, GeaSphere agreed to a stiffer penalty of $100,000.

Corey Schuster, co-chief of the enforcement division’s asset management unit, emphasized the marketing rule’s role in keeping the investing public safe from misleading advertising claims.

“Today’s actions show that we will continue to employ targeted initiatives to ensure that investment advisers fully comply with their obligations under the rule,” Schuster said. “They also serve as a reminder of the benefits to firms that take corrective steps before being contacted by Commission staff.”

Last September, the SEC announced that it had found violations of the marketing rule at nine advisory firms.

When the marketing rule took effect in 2022, it posed a compliance challenge for advisors as they wrestled with its implications on their ability to publish testimonials. Since then, they’ve gotten a little more clarity, as the SEC’s enforcement actions – including a $1 million settlement against robo-advisor Titan Global Capital Management USA in August last year – provided insights into the regulator’s thinking and expectations around the rule.

Related Topics: Marketing rule, Securities and Exchange Commission