The Securities and Exchange Commission (SEC) has charged Titan Global Capital Management USA LLC, a New York-based fintech investment adviser, for using hypothetical performance metrics in advertisements that were misleading. The fintech advisor has also been charged with three other offences too.
Titan offers multiple complex strategies to retail investors through its mobile trading app. However, according to the SEC, between August 2021 and October 2022, the firm made misleading statements on its website regarding hypothetical performance. This included advertising ‘annualised’ performance results as high as 2,700 per cent for its Titan Crypto strategy.
The order alleges that Titan’s advertisements were misleading because they failed to include material information. For example, the hypothetical performance projections assumed that the strategy’s performance in its first three weeks would continue for an entire year.
Furthermore, it also finds that Titan violated the marketing rule by advertising hypothetical performance metrics. It did not adopt or implement the required policies and procedures. Nor did it take other steps required by the Commission’s marketing rule, which was amended in December 2020.
Further failings
The SEC’s order further finds that Titan:
- Made conflicting disclosures to clients about how Titan custodied crypto assets.
- Included in its client advisory agreements liability disclaimer language that created the false impression that clients had waived non-waivable causes of action against Titan.
- Contrary to representations, failed to adopt policies and procedures concerning employee personal trading in crypto assets.
The order also states that Titan self-reported to the SEC staff that it failed to ensure that client signatures were obtained for certain types of transactions in client accounts. It agreed to settle related charges.
“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 the use of 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.
“Titan’s advertisements and disclosures painted a misleading picture of certain of its strategies for investors. This action serves as a warning for all advisers to ensure compliance.”
Consequences
Titan cooperated with the investigation. It 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
- Pay $192,454 in disgorgement, prejudgment interest
- An $850,000 civil penalty that will be distributed to affected clients
The investigation was conducted by Kelly Rock and Elisabeth Goot and was supervised by Armita Cohen and Osman Nawaz of the complex financial instruments unit. Assistance from Alexander Lefferts of the enforcement division’s office of investigative and market analytics. This was in addition to Ling Yu and Carolyn O’Brien from the division of examinations.
