SEC Charges Adviser for Misleading GIPS Compliance Claims
The SEC has instituted an enforcement action against an adviser that the SEC alleges falsely claimed that its composites were GIPS compliant and verified. According to the SEC, the respondent claimed GIPS compliance in several national financial magazines (e.g. Smart Money, Barron’s). However, according to the SEC, the firm failed to include required period-to-date performance, which would have shown significant underperformance against the relevant benchmark. The firm also claimed GIPS compliance in reports to Morningstar, which the SEC alleges constituted an advertisement because Morningstar publishes the data. The SEC also says that the firm claimed that its composites were verified even though the relevant GIPS verification firm had resigned.
OUR TAKE: The SEC does not monitor GIPS compliance but it can bring an enforcement action for fraud if a firm falsely or inaccurately claims GIPS compliance.