On April 22, 2024, the SEC resolved an enforcement action against an investment adviser and the firm’s owner based in Fort Lauderdale. The enforcement action demonstrates how important it is for investment advisers and Investment Adviser Representatives to be accurate and truthful in all of their communications.

According to the SEC’s complaint, the investment adviser and its owner placed the majority of their clients in proprietary portfolio models managed by the adviser that were based on, and had similar names as, investment strategies managed by more prominent third-party money managers. In certain written proposals and communications with prospective and existing advisory clients, the investment adviser and its principal failed to differentiate between the firm’s models and the third-party strategies on which they were based. The SEC determined that the investment adviser and its owner did not disclose clearly that clients would be invested in the firm’s models and not directly in the third-party strategies.

Frequently, the investment adviser and its principal included historical performance and fact sheets for the third-party strategies in the information provided to prospects and clients. Those communications failed to make it clear that the firm’s investments would differ from the strategies articulated in those materials. As a result, these written communications were misleading in their discussions of clients’ current or proposed investments and their performance history. The investment adviser and its principal did not communicate that the results of the firm’s models would continue to differ from the returns for the strategies discussed in those materials.

The investment adviser and its owner often described investment recommendations in a way that failed to differentiate clearly between the firm’s models and its third-party strategies. The investment adviser often sent these emails before or after meetings with prospective or current advisory clients. The written materials provided to the prospective and existing clients often referred to the third-party strategies. Those materials listed the names of the third-party strategies in tables. The firm attached fact sheets prepared by the managers of the third-party strategies. In addition, these communications included charts created by the investment adviser, which reflected the third-party strategies’ historic performance rather than the performance of the firm’s models.

At times, the investment adviser and its owner’s written communications used misleading language when explaining to clients how their money was invested. These communications were misleading because they failed to explain that clients in the investment adviser’s managed accounts were not and would not be invested in the third-party strategies highlighted in the emails or in the attached fact sheets.

The performance information the investment adviser provided to clients was different from the performance of the firm’s models. The firm never mentioned that the investment adviser did not invest clients’ funds at the same time in the same securities with the same weighting as the third-party strategies described in the communications.

Because of this conduct, the investment adviser and its owner violated Section 206(2) of the Investment Advisers Act of 1940. Furthermore, the firm’s owner caused the investment adviser to violate Section 206(2). That section of the statute makes it unlawful for any investment adviser, directly or indirectly, to “engage in any transaction, practice or course of business which operates as a fraud or deceit upon any client or prospective client.”

The investment adviser was forced to pay a civil money penalty of $100,000 to the SEC. The firm also agreed to be censured. The owner of the firm was fined $50,000.



Whether communications are directed at clients or prospects, misleading statements will cause compliance problems. All communications should be thorough, complete, and not misleading in any way.

The enforcement action is available here.


About RIA Compliance Group: RIA Compliance Group is an investment adviser compliance consulting firm based in Delray Beach, Florida. The firm’s mission is to provide affordable, timely, practical, and cost-effective compliance advice. We help investment advisers to comply with the myriad of state and SEC regulations and compliance obligations facing their firms. RIA Compliance Group takes pride in giving personal service and real world compliance advice, not theoretical concepts and legalese. The firm interacts on a daily basis with SEC and state securities regulators.

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