Enforcement Action Against Consultant for Misleading Clients Re:  Gifts as Compensation

February 10, 2017

The SEC brought an enforcement action against a consultant for misleading clients about gifts it received from investment advisers that it recommended. The marketing materials of the firm stated that neither the firm nor its employees received gifts or other compensation from any such investment advisers.  The SEC found that the firm’s employees received tickets to golf events and similar gifts. For example, certain firm employees accepted tickets to the Masters Golf Tournament in 2012 and 2013. The 2013 Masters trip was in violation of the firm’s gift policy, which only allowed gifts of over $100 with pre-approval. The gifts thus violated the code of ethics but the firm; however, the firm did not bring disciplinary actions against such persons. 

In addition, the SEC found the firm disseminated hypothetical and back-tested performance in violations of the Advisers Act. The SEC found that the firm developed a chart that purported to show the value added by its investment manager recommendations. The SEC stated that the chart was misleading because the performance figures used in the chart did not in fact represent the performance of the firm’s historical investment manager recommendations, and instead were both hypothetical and backtested. Furthermore, the SEC stated that the firm did not make and keep adequate books and records to substantiate the performance data in the chart.

SEC Source Document:   https://www.sec.gov/litigation/admin/2017/ia-4647.pdf