The Securities and Exchange Commission announced charges and penalties against a California-based registered investment adviser for violating provisions of its Marketing Rule, according to WealthManagement.com.
The SEC’s investigation found that Atlas Financial Advisors, Inc. (“Atlas”), advertised an investment strategy called “Portfolio Shield” on its public websites with false and misleading claims about the strategies and their hypothetical performance.
Atlas claimed Morningstar, Inc. had “verified” and “validated” the strategies’ hypothetical performance even though Morningstar never did so, according to the SEC’s order. “In fact, Morningstar never verified Atlas’ calculations nor provided reports on the strategies,” the commission states in an order detailing the settlement. “Rather, an Atlas employee used a software tool offered by Morningstar to calculate the advertised hypothetical performance.”
Furthermore, the commission found that “Atlas attributed hypothetical performance to the Portfolio Shield strategies without disclosing that the performance was calculated from model portfolios that did not consistently follow the strategies’ advertised investment formulas and made additional false and misleading statements about the strategies’ operation and the experience of the strategies’ creator.”
Atlas was also found to have advertised gross hypothetical performance without also presenting net hypothetical performance and advertised hypothetical performance to mass audiences on its website without adopting and implementing the required policies and procedures. The SEC’s order said that Atlas personnel failed to adhere to a provision in its compliance manual requiring Atlas representatives to conduct client business before personally trading the same or similar securities.
Atlas was found to be in violation of the books and records and Marketing Rule provisions of Sections 204 and 206(4) of the Investment Advisers Act of 1940 and Rules 204-2(a), 206(4)-1(a), 206(4)-1(d), and 206(4)-7 thereunder.
The firm did not admit or deny the findings, but consented to a civil penalty of $175,000, along with a cease-and-desist order, a censure, to comply with undertakings to review and update its policies and procedures and to ensure its advertisements comply with the Marketing Rule.
The attorneys at Hyman Cotter PC were formerly senior attorneys in the SEC’s Division of Enforcement. We have represented clients in regulatory matters while working at Morgan Stanley and in private practice at some of the world’s largest law firms. Therefore, we understand the complexities that come with being the subject of a regulatory inquiry, and we have the experience to guide and advise you through any type of regulatory investigation. If you are the subject of a regulatory proceeding, contact Hyman Cotter PC at 312-291-4600 or through our online contact form for a free consultation.
