SEC charges advisor for using hypothetical performance metrics in ads

The Securities and Exchange Commission (SEC) filed charges against Titan Global Capital Management USA for using hypothetical performance metrics in misleading advertisements.

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Titan Global, a New York-based FinTech investment adviser, was also charged with multiple compliance failures that led to misleading disclosures about custody of clients’ crypto assets, the use of improper “hedge clauses” in client agreements, the unauthorized use of client signatures, and the failure to adopt policies concerning crypto asset trading by employees.

For a period ranging from August 2021 to October 2022, Titan, which offers multiple complex strategies to retail investors through its mobile trading app, made misleading statements on its website regarding hypothetical performance, according to the SEC’s order. Specifically, the SEC alleges that it advertised “annualized” performance results as high as 2,700 percent for its Titan Crypto strategy.

The order alleges that Titan’s advertisements were misleading because they did not include material information, for example, that the hypothetical performance projections assumed that the strategy’s performance in its first three weeks would continue for an entire year.

Further, the order said that Titan violated the marketing rule by advertising hypothetical performance metrics without having adopted and implemented required policies and procedures or taking other steps required by the SEC’s marketing rule.

“When offering and marketing complex strategies, investment advisers must ensure the accuracy of disclosures made to existing and prospective investors. 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,” Osman Nawaz, chief of enforcement’s complex financial instruments unit, said. “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.”

The order also found that Titan (1) made conflicting disclosures to clients about how Titan custodied crypto assets; (2) included in its client advisory agreements liability disclaimer language that created the false impression that clients had waived non-waivable causes of action against Titan; and (3), contrary to representations, failed to adopt policies and procedures concerning employee personal trading in crypto assets.

Titan cooperated with the investigation and consented to the entry of the SEC’s order finding that it violated the Advisers Act. Without admitting or denying the SEC’s findings, Titan agreed to a cease-and-desist order, a censure, and to pay $192,454 in disgorgement, prejudgment interest and an $850,000 civil penalty that will be distributed to affected clients.