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Adviser Regulatory & Compliance News

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SEC Investor Bulletin: Investment Adviser Sponsored Wrap Fee Programs

January 5, 2018

In early December the SEC published an Investor Bulletin updating and outlining the basics of wrap fee programs from an investor's perspective. The Bulletin is instructive on the SEC's current advice and views of such programs, which are growing rapidly. Notably at the end of the Bulletin the SEC references several key enforcement actions regarding such programs. Click the heading of this blurb for a link to the Bulletin.

Senate Confirms Peirce and Jackson as New Commissioners

December 22, 2017

The full Senate on confirmed by voice vote Hester Pierce, a Republican, and Robert Jackson, a Democrat, to be Commissioners of the SEC. The SEC now has its full allotment of commissioners. Mr. Jackson, a professor at Columbia University, and Ms. Peirce, a senior research fellow at George Mason University, will join the SEC after they are sworn in. Chairman Jay Clayton and Commissioners Michael Piwowar and Kara Stein are the other three Commissioners.

ICOs:  the Chairman Speaks

December 20, 2017

When the SEC Chairman speaks, folks listen. On Dec. 11, SEC Chair Clayton issued a lengthy "statement" on the current wave of initial coin offerings (ICOs) (see our Nov. 13 story on the basics), focusing on whether ICOs are treated as securities under the federal securities laws. He noted that, while not all tokens may be securities, simply calling a token something else does not bring an offering outside the SEC’s purview. “Key hallmarks” of tokens being securities include, in the SEC’s view, when an issuer emphasizes the possibility for ICO tokens to appreciate in value or encourages a secondary market for tokens. Clayton’s statement, along with recent SEC efforts to stop certain ICOs, indicate that increased enforcement activity in this area will continue. Click the heading to access the Statement.

F-Squared Related Action Brought Against an Investment Adviser

December 8, 2017

The SEC brought an enforcement action against Horter Investment Management, LLC that was related to a prior enforcement action against F-Squared. The SEC stated that the matter arises from misstatements made by registered investment adviser Horter to certain of its advisory clients concerning F-Squared Investments, Inc.’s materially inflated, and hypothetical and back-tested, performance track record for its AlphaSector strategy. The SEC noted that from January 2012 to October 1, 2013, in reliance on F-Squared’s false statements, Horter disseminated AlphaSector advertisements falsely stating: (a) assets had been invested in the AlphaSector strategy from April 2001 to September 2008; and (b) the track record had significantly outperformed the S&P 500 Index from April 2001 to September 2008. In fact, no F-Squared or other client assets had tracked the strategy from April 2001 through September 2008. In addition, the SEC found that F-Squared miscalculated the historical performance of AlphaSector from April 2001 to September 2008 by incorrectly implementing signals in advance of when such signals actually could have occurred. Because of this inaccurate compilation of historical data by F-Squared, Horter advertised the AlphaSector strategy by using hypothetical and back-tested historical performance that was inflated substantially over what performance would have been if F-Squared had applied the signals accurately. As a result, Horter violated Sections 206(2) and 206(4) of the Advisers Act and Rule 206(4)-1(a)(5) thereunder by publishing, circulating, and distributing advertisements that contained untrue statements of material fact.