The SEC has issued another enforcement action that involves a sweep of multiple firms, this time focusing on nine investment advisers that it said violated the agency’s marketing rule.

In a statement Monday, the SEC announced it has settled charges against nine registered investment advisers that reportedly distributed advertisements containing untrue or unsubstantiated claims, as well as testimonials, endorsements, or third-party ratings without the required disclosures.

The nine companies involved have agreed to civil penalties totaling $1.24m, according to the SEC’s press release.

The companies charged

The nine firms and the civil penalties they agreed to pay are:

• Abacus Planning Group Inc – $150,000;
• AZ Apice Capital Management LLC – $70,000;
• Beta Wealth Group, Inc – $80,000;
• Droms Strauss Advisors Inc – $85,000;
• Howard Bailey Securities LLC – $90,000;
• Integrated Advisors Network LLC – $325,000;
• Professional Financial Strategies Inc – $60,000;
• Richard Bernstein Advisors LLC – $295,000; and
• TS Bank d/b/a Callahan Financial Planning – $85,000.

Disclosures not included

The SEC alleged that the firms distributed “untrue or unsubstantiated” facts, endorsements or third-party rankings without including required disclosures.

In some cases, the investment advisers included misleading information about the timing of the nature of awards, including from popular industry rankings such as Barron’s and The Financial Times. In other cases, the firms had falsely advertised their advice as free from customer conflicts, according to the SEC. 

Integrated Advisors Network agreed to the largest penalty. Looking at the SEC order naming the firm, the SEC said that Integrated claimed online that it was “a true fiduciary that puts the client first by aligning incentives and eliminating conflicts of interest.”  

The SEC went on to say that, in reality, Integrated Advisors “recognized various conflicts of interest inherent in providing investment advisory services, including conflicts of interest disclosed in its Form ADV Part 2A brochures.”

“The advertisements at issue in each of these actions violated the Marketing Rule and posed a serious risk of misleading investors.”

Corey Schuster, Co-Chief, SEC Division of Enforcement Asset Management Unit

The SEC also said AZ Apice, Callahan Financial, and Droms Strauss, disseminated advertisements that similarly claimed to provide conflict-free advisory services, which the firms were not able to substantiate.

The SEC’s orders said Abacus and Callahan Financial published advertisements with untrue statements about third-party ratings and that Callahan Financial posted an advertisement falsely claiming that it was a member of an organization that did not exist.

According to the SEC’s order, Howard Bailey disseminated advertisements claiming to contain two testimonials, but neither actually came from current clients. It also advertised endorsements that did not disclose that the endorser was a paid, non-client of Howard Bailey in videos, on social media, and on physical objects such as bags and flags.

Finally, as set forth in the orders, Abacus, Beta Wealth, Professional Financial, and Richard Bernstein Advisors included in their advertisements third-party ratings, some of which were more than five years old, without disclosing the dates on which the ratings were given or the periods of time upon which the ratings were based.

The Marketing Rule

The SEC’s amended Marketing Rule (Rule 206(4)-1) was adopted in December 2020 and had a compliance deadline of November 4, 2022 for registered investment advisers.

In this enforcement sweep, Corey Schuster, Co-Chief of the SEC Division of Enforcement’s Asset Management Unit, said: “The Marketing Rule’s provisions regarding truthfulness, substantiation, and disclosure are critical to protecting investors. The advertisements at issue in each of these actions violated the Marketing Rule and posed a serious risk of misleading investors.”

Compliance in focus

In April, the SEC announced settled charges against five registered investment advisers for violations of the agency’s Marketing Rule, specifically targeting the firms’ advertisements of hypothetical performance to the general public. All five firms agreed to settle the SEC’s charges and will pay $200,000 in combined penalties.

Last September, the US SEC announced charges against nine registered investment advisers for advertising hypothetical performance to the general public on their websites without adopting and/or implementing policies and procedures required by the Marketing Rule, which was adopted by the SEC in December 2020.

All nine firms agreed to settle the SEC’s charges and to pay $850,000 in combined penalties, with penalties ranging from $50,000 to $175,000 among them.

The agency has reiterated its commitment to enforcing the rule and examining firms for compliance with it at industry events, and it issued a Risk Alert last June detailing the added areas of emphasis during its Marketing Rule-focused exams.