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In a settled action, the SEC charged an investment adviser for false advertising and its chief compliance officer on related matters. The defendants did not admit or deny the charges.

Among other things, the SEC claimed advertisements which did not disclose that the portrayed results did not deduct fees and thus materially overstated investment performance were false and misleading. According to the SEC the advertisement violated Section 206(4) of the Investment Advisers Act and Rule 206(4)-1(a)(5) thereunder. Section 206(4) prohibits investment advisers from engaging in “any act, practice, or course of business which is fraudulent, deceptive or manipulative,” as defined by the Commission by rule. Rule 206(4)-1(a)(5) thereunder makes it unlawful for any registered investment adviser, directly or indirectly, to distribute an advertisement which contains any untrue statement of a material fact, or which is otherwise false and misleading.

The investment adviser’s policies and procedures manual stated the chief compliance officer “ha[d] the overall responsibility and authority to develop and implement the firm’s compliance policies and procedures and to conduct an annual review to determine their adequacy and effectiveness in detecting and preventing violations of the firm’s policies, procedures or federal securities laws.” The manual contained detailed procedures for approving advertising, including initialing and dating of approved materials. The SEC found that since the chief compliance officer failed to implement these policies and procedures, the chief compliance officer caused the investment adviser’s compliance failures.


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