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Vedder Thinking | Articles SEC Settles Enforcement Proceedings Against Nine Advisers for Alleged Marketing Rule Violations


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On September 11, 2023, the SEC announced the settlement of administrative proceedings brought against nine registered investment advisers for disseminating hypothetical performance returns on their public websites without adopting required policies and procedures required by Rule 206(4)-1 under the Investment Advisers Act of 1940, known as the Marketing Rule.

Among other things, the Marketing Rule prohibits advisers from using hypothetical performance information in advertising material unless they have adopted and implemented policies and procedures to ensure that the information is relevant to the likely financial situation and investment objectives of the advertisement’s intended audience. Hypothetical performance information includes the performance of model portfolios and backtested performance returns derived from applying a strategy to historical data from periods when the strategy was not actually employed. In addition, Rule 204-2(a)(11) under the Advisers Act requires advisers to maintain copies of all advertising material disseminated directly or indirectly. The SEC alleged that all nine advisers failed to adopt and implement the requisite policies and procedures, resulting in the dissemination of hypothetical performance information to mass audiences through their websites. In addition, the SEC alleged that two of the advisers failed to maintain the required copies of their advertising material.

The SEC found that the advisers willfully violated Section 206(2) of the Advisers Act, which makes it unlawful for an adviser to engage in fraud or deceit upon any client or prospective client, Section 206(4) of the Advisers Act, which makes it unlawful for any adviser to engage in fraudulent, deceptive or manipulative business practices, as well as the Marketing Rule and, as applicable, the related recordkeeping rule. Without admitting or denying the allegations, the advisers agreed to cease and desist from future violations, to be censured, to comply with certain undertakings and to pay civil monetary penalties ranging from $50,000 to $175,000.

In announcing the settlements, Gurbir S. Grewal, Director of the SEC’s Division of Enforcement, stated that, “[b]ecause of their attention-grabbing power, hypothetical performance advertisements may present an elevated risk for prospective investors whose likely financial situation and investment objectives don’t match the advertised investment strategy. . .It is therefore crucial that investment advisers implement policies and procedures to ensure their compliance with the [Marketing Rule].”

The SEC’s press release announcing the settlements can be found here.



Nathaniel Segal


Jacob C. Tiedt