Robo Advertised Hypothetical Performance and Paid Bloggers
A robo-advisor agreed to return fees to investors and paid a fine for advertising misleading performance data and failing to disclose that it paid bloggers for referrals.
The robo claimed to have outperformed the market over an 11-year period, but the firm failed to disclose that it was only in business for two years and that the historical data was hypothetical. The firm actually underperformed the S&P 500 for the two years it operated. The SEC also accuses the firm of falsely trumpeting that its performance bested a competing robo-adviser. The firm also paid bloggers to solicit clients without disclosing the compensation to clients or satisfying the other requirements of the solicitation rule (206(4)-3). The SEC faults the firm, which de-registered soon after the enforcement case, for failing to implement an adequate compliance program.
OUR TAKE: Fintech companies are not exempt from the securities laws. Adviser marketing on social media falls under the adviser and advertising rules. Paying bloggers comes under the solicitation rules. Robo-advisers are registered advisers that are required to implement a compliance program. Some free advice to fintech entrepreneurs: hire a regulatory adviser (lawyer, compliance consultant) that can help you avoid a crippling regulatory blunder.
Read SEC Order here.