SEC sanctions firm over crypto hype

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Robo-advisor violated rules when touting hypothetical performance

By: James Langton

August 21, 2023 August 21, 2023

15:44

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New York–based robo-advisor Titan Global Capital Management USA LLC has been sanctioned by the U.S. Securities and Exchange Commission (SEC) for misleading investors with its hypothetical performance marketing.

The SEC charged the firm, which offers managed strategies to retail investors through its mobile app, for misrepresenting hypothetical performance of its crypto trading strategies in its marketing to investors, along with various other compliance failures.

For instance, the SEC alleged the firm advertised “annualized” performance for its crypto strategy that showed returns of 2,700%, without disclosing that this assumed the strategy’s performance over a three-week period would continue for a full year.

The SEC also alleged the firm made conflicting disclosures about how it custodied cryptoassets, included inaccurate liability disclaimer language in its client advisory agreements, and failed to adopt policies concerning employees’ personal trading in cryptoassets.

The firm settled the allegations without admitting or denying the SEC’s findings. It agreed to a cease-and-desist order, a censure, and to pay almost US$200,000 in disgorgement and a US$850,000 penalty.

“Titan’s advertisements and disclosures painted a misleading picture of certain of its strategies for investors. This action serves as a warning for all advisers to ensure compliance,” said Osman Nawaz, chief of the SEC enforcement division’s complex financial instruments unit, in a release.

The charges are the first to be made under the SEC’s revised rules on marketing, which were adopted in late 2020.

“The commission amended the marketing rule to allow for the use of hypothetical performance metrics but only if advisers comply with requirements reasonably designed to prevent fraud,” Nawaz said.

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Robo-advisor violated rules when touting hypothetical performance. By: James Langton. August 21, 2023 August 21, 2023. 15:44. Facebook. LinkedIn. Twitter. Mail to a fried. Print. James Langton. New York–based robo-advisor Titan Global Capital Management USA LLC has been sanctioned by the U.S. Securities and Exchange Commission (SEC) for misleading investors with its hypothetical performance marketing. The SEC charged the firm, which offers managed strategies to retail investors through its mobile app, for misrepresenting hypothetical performance of its crypto trading strategies in its marketing to investors, along with various other compliance failures. For instance, the SEC alleged the firm advertised “annualized” performance for its crypto strategy that showed returns of 2,700%, without disclosing that this assumed the strategy’s performance over a three-week period would continue for a full year. The SEC also alleged the firm made conflicting disclosures about how it custodied cryptoassets, included inaccurate liability disclaimer language in its client advisory agreements, and failed to adopt policies concerning employees’ personal trading in cryptoassets. The firm settled the allegations without admitting or denying the SEC’s findings. It agreed to a cease-and-desist order, a censure, and to pay almost US$200,000 in disgorgement and a US$850,000 penalty. “Titan’s advertisements and disclosures painted a misleading picture of certain of its strategies for investors. This action serves as a warning for all advisers to ensure compliance,” said Osman Nawaz, chief of the SEC enforcement division’s complex financial instruments unit, in a release. The charges are the first to be made under the SEC’s revised rules on marketing, which were adopted in late 2020. “The commission amended the marketing rule to allow for the use of hypothetical performance metrics but only if advisers comply with requirements reasonably designed to prevent fraud,” Nawaz said. Related news. Ontario seeks to expand OSC sanctions spending. FINRA names new enforcement chief. FSRA finalizes credit unions’ operational guidance. Enforcement, Investor protection, Robo-advisors, Disclosure, Crypto, Marketing, Fund performance. Companies. Securities and Exchange Commission. Share this article and your comments with peers on social media. Facebook. LinkedIn. Twitter. Every day, get the financial news that matters in your inbox. Tools. Webinars. Insurance lending: Level up your knowledge to unlock its potential. How to handle ESG pushback. CE Corner. For Your Clients. Events.