Bringing you live news and features since 2006 

Judgement hammer picture

SEC charges two robo-advisers with false disclosures

RELATED TOPICS​

The Securities and Exchange Commission (SEC) has instituted settled proceedings against two robo-advisers for making false statements about investment products and publishing misleading advertising.  

The proceedings are the SEC’s first enforcement actions against robo-advisers, which provide automated, software-based portfolio management services.

An SEC order found that Redwood City, California-based Wealthfront Advisers LLC (formerly known as Wealthfront Inc), a robo-adviser with over USD11 billion in client assets under management, made false statements about a tax-loss harvesting strategy it offered to clients. Wealthfront disclosed to clients employing its tax-loss harvesting strategy that it would monitor all client accounts for any transactions that might trigger a wash sale – which can diminish the benefits of the harvesting strategy – but failed to do so. Over a period of more than three years during which it made this disclosure, wash sales occurred in at least 31 per cent of accounts enrolled in Wealthfront’s tax loss harvesting strategy. The SEC’s order also found that Wealthfront improperly re-tweeted prohibited client testimonials, paid bloggers for client referrals without the required disclosure and documentation, and failed to maintain a compliance program reasonably designed to prevent violations of the securities laws.

A separate SEC order found that New York City-based Hedgeable Inc, a robo-adviser which had approximately USD81 million in client assets under management, made a series of misleading statements about its investment performance.  According to the order, from 2016 until April 2017, Hedgeable posted on its website and social media purported comparisons of the investment performance of Hedgable’s clients with those of two robo-adviser competitors. The performance comparisons were misleading because Hedgeable included less than 4 per cent of its client accounts, which had higher-than-average returns. Hedgable compared this with rates of return that were not based on competitors’ actual trading models. The SEC’s order also found that Hedgeable failed to maintain required documentation and failed to maintain a compliance program reasonably designed to prevent violations of the securities laws.

“Technology is rapidly changing the way investment advisers are able to advertise and deliver their services to clients,” says C Dabney O’Riordan, Chief of the SEC Enforcement Division’s Asset Management Unit.  “Regardless of their format, however, all advisers must take seriously their obligations to comply with the securities laws, which were put in place to protect investors.” A bulletin published by SEC’s Office of Investor Education and Advocacy contains additional information about robo-advisers.

The SEC’s order against Wealthfront found that the adviser violated the antifraud, advertising, compliance, and other provisions of the Investment Advisers Act of 1940.  Without admitting or denying the SEC’s findings, Wealthfront consented to the entry of the SEC’s order censuring it, requiring it to cease and desist from further violations, and imposing a USD250,000 penalty.

The SEC’s order against Hedgeable found that the adviser violated the antifraud, advertising, compliance, and books and records provisions of the Investment Advisers Act of 1940.  Without admitting or denying the SEC’s findings, Hedgeable consented to the entry of the SEC’s order censuring it, requiring it to cease and desist from further violations, and imposing an USD80,000 penalty.

Latest News

21Shares AG has announced that the firm has added staking to the 21Shares Cosmos ETP (ATOM) and the 21Shares Avalanche..
EFAMA has published its latest Monthly Statistical Release for May 2024...
Solactive writes that it has expanded its collaboration with Kiwoom Asset Management by providing the underlying indices to the KIWOOM..
MSCI has announced the launch of MSCI Private Capital Indexes, writing that with growing investor interest in private markets, high..

Related Articles

Scott Kefer, VictoryEx Capital Holdings
Bailey McCann writes that active ETFs are capturing investor interest, according to the latest data from Morningstar, which finds that...
Chris Lo, Columbia Threadneedle
In a recent insight on India by Columbia Threadneedle Investments, the firm reports that the country’s economic reforms, which aim...
With an election on the horizon in the United States a group of ETFs is poised to capture investments on...
Robot worker
Qraft Technologies, based in South Korea, specialises in the use of AI in security selection and portfolio construction....
Subscribe to the ETF Express newsletter

Subscribe for access to our weekly newsletter, newsletter archive, updates on the site and exclusive email content.

Marketing by