AdvisersSEC

FYI: Robos Charged with Violations

FYI: Perhaps in an effort to emphasize that robo advisers have to adhere to the same rules as other advisers, the SEC announced settled charges with two robos yesterday, citing various violations under the anti-fraud, advertising and books and records rules.

According to the SEC orders, the first case involved violations stemming from:
–False disclosures that said the robo’s tax loss harvesting strategy monitored for “wash sales” when it did not, resulting in numerous wash sales occurring over the relevant period.
–Retweeting on its Twitter feed positive statements made about the robo by other Twitter users, including in some cases statements made by individuals who had a financial interest in making a positive statement about the robo and in some cases containing references to client experiences with the robo, without adhering to relevant Advertising Rule disclosure and related requirements.
–Paying bloggers for successful client solicitations, without adhering to the Cash Solicitation Rule requirements.
–Failing to keep required books and records.

The second case involved violations stemming from:
–False performance disclosures comparing the robo to other robos, which included incorrectly calculated and misleading performance information.
–Failing to adopt adequate compliance procedures to oversee advertising and promotional materials, including failing to understand that digital media postings (website, blog, social media, etc.) were considered advertising under the Advisers Act.
–Failing to keep required books and records.

Order in first case (Wealthfront): https://www.sec.gov/litigation/admin/2018/ia-5086.pdf.

Order in second case (Hedgeable): https://www.sec.gov/litigation/admin/2018/ia-5087.pdf.

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