The Securities and Exchange Commission (SEC) has brought charges against New York-based FinTech investment adviser Titan Global Capital Management USA LLC (Titan) for misrepresenting hypothetical performance metrics in its advertising and committing multiple compliance failures.
Today we announced charges against Titan Global Capital Management USA for using hypothetical performance metrics in ads that were misleading. This marks the first violation of the SEC’s amended marketing rule.https://t.co/W23wbvQBsV
— U.S. Securities and Exchange Commission (@SECGov) August 21, 2023
Between August 2021 and October 2022, Titan used misleading information in its advertisements, promoting hypothetical “annualized” performance results as high as 2,700 % for its Titan Crypto strategy.
However, the SEC has revealed that Titan’s advertisements left out crucial information. Significantly, the hypothetical performance projections wrongly assumed that the strategy’s performance in its first three weeks would continue throughout the year. Moreover, Titan’s advertising violated the SEC’s marketing rule, amended in December 2020, as the firm did not adopt the required policies and procedures or take the steps outlined in the law.
Compliance Failures and Misleading Disclosures
Besides misleading performance metrics, the SEC’s order also found that Titan made conflicting disclosures about how it custodied clients’ crypto assets and included liability disclaimer language in its client advisory agreements, creating the false impression that clients had waived non-waivable causes of action against the firm.
Titan also self-reported that it failed to obtain client signatures for specific transactions in client accounts and agreed to settle related charges. Additionally, contrary to its representations, Titan did not adopt policies and procedures concerning employee personal trading in crypto assets.
Titan’s Cooperation to Charges and Settlement
“When offering and marketing complex strategies, investment advisers must ensure the accuracy of disclosures made to existing and prospective investors. The Commission amended the marketing rule to allow for hypothetical performance metrics but only if advisers comply with requirements reasonably designed to prevent fraud,” said Osman Nawaz, Chief of Enforcement’s Complex Financial Instruments Unit.
Hence, Titan’s advertisements and disclosures provided a misleading impression of some of its strategies for investors. This action serves as a warning for all advisers to ensure compliance.
Titan cooperated with the SEC’s investigation and consented to the entry of the SEC’s order finding that it violated the Advisers Act. Without admitting or denying the SEC’s findings, Titan agreed to a cease-and-desist order, a censure, and to pay $192,454 in disgorgement, prejudgment interest, and an $850,000 civil penalty that will be distributed to affected clients.