How the SEC’s $1.2 Million Fines Signal the Importance of Marketing Rule Compliance for Investment Managers

18th September 2024

Introduction to the SEC’s Recent Charges Against Investment Managers

On September 9^th, the SEC announced charges against nine investment managers for non-compliance with the Marketing Rule, totaling over 1.2 million dollars. However, the monetary costs will pale in comparison to the reputational damage caused by the non-compliance as well as any potential litigation from clients.

Summary of SEC Violations: Common Compliance Mistakes

In summary, the SEC uncovered several types of violations, including:

Untrue statements about third-party ratings;
Memberships to organizations that did not exist;
Claims about services without any substantiation; and
Endorsements without required disclosures relating to compensation or dates.

Why Investment Managers Struggle with Marketing Rule Compliance

These types of mistakes are very common but also very easy to catch. Unfortunately, a lot of investment managers do not have the time, resources, and in some cases the requisite legal knowledge to prevent these issues in their marketing materials.

In particular – using the claim of membership to a non-existent organization as an example – some of these mistakes highlight flaws in many managers’ processes. It is very likely that the creators of the marketing material either added the membership claim after compliance had signed off on the document or the compliance team did not have the time to check that the organization existed.

The SEC’s Focus on Marketing Rule Reviews: What to Expect

As Zeidler has outlined in previous posts, the SEC’s power had been narrowed in 2024 which led us to predict that the SEC staff would focus on the remaining areas where they can flex their power: non-compliance with the SEC Marketing Rule. The fines to these nine investment managers should be seen as a shot across the proverbial bow for the investment management industry because the SEC will continue with rolling Marketing Rule reviews, most likely at an increased rate.

Note: The SEC’s Division of Examinations will release its priorities in October, and Marketing Rule compliance should be a priority (this is not great news for firms that do not have a robust marketing compliance process).

How the Zeidler MMR Tool Can Prevent Costly SEC Compliance Failures

With all that said, what could have prevented these issues for those nine firms? A simple, reliable tool that checks marketing materials for SEC Marketing Rule compliance. Good news: such a tool already exists!

The Zeidler Marketing Material Review (MMR) tool would have completely prevented these issues. Had these firms used the Zeidler MMR tool, their respective marketing materials would have been flagged for every one of the violations the SEC found.

Protect Your Firm from Fines and Reputational Damage

By using the Zeidler MMR Tool, investment managers can prevent compliance failures, avoid costly penalties, and, most importantly, safeguard their firm’s reputation from long-term damage caused by SEC violations.

Take Control of Your Marketing Compliance Today

Don’t wait for the SEC to come knocking. Protect your firm from costly fines and reputational damage by ensuring your marketing materials are fully compliant, let our lawyer-educated AI do the heavy lifting!