SEC Charges Crypto Investment Adviser for Publishing Misleading ‘Hypothetical Performance Projections’

The U.S. Securities and Exchange Commission (SEC) has charged Titan Global Capital Management for publishing misleading “hypothetical performance projections” regarding its crypto investment product. Titan Global is also accused of violating the marketing rule when it advertised hypothetical performance metrics without taking the required steps.

Improper Use of Hedge Clauses

The U.S. Securities and Exchange Commission (SEC) said on Aug. 21 that it had charged a New York-based fintech investment adviser, Titan Global Capital Management, for publishing misleading information regarding its crypto investment product. In a statement, the securities regulator revealed that Titan Global has also been charged “with multiple compliance failures” which culminated in the release of “misleading disclosures about custody of clients’ crypto assets.”

According to the SEC, the same compliance failures are also believed to have led to the use of improper “hedge clauses” in client agreements. They also resulted in the illegal use of client signatures and “the failure to adopt policies concerning crypto asset trading by employees.”

Meanwhile, in its order, the U.S. securities regulator highlighted its concerns with the investment adviser’s misleading advertisements.

“The order alleges that Titan’s advertisements were misleading because they failed to include material information, for example, that the hypothetical performance projections assumed that the strategy’s performance in its first three weeks would continue for an entire year,” the SEC said.

A Warning to Investment Advisers

In addition, Titan Global is also accused of violating the marketing rule by advertising hypothetical performance metrics without taking the required steps. The SEC said the fintech adviser’s alleged violations were committed between Aug. 2021 and October 2022.

Commenting on the SEC’s decision against the fintech investment adviser, Osman Nawaz, the Chief of Enforcement’s Complex Financial Instruments Unit, said:

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.

The Commission also revealed that Titan Global had cooperated with the investigation and consented to the entry of an SEC order. Titan Global subsequently agreed to a cease-and-desist order, a disgorgement fee of $192,454, and a civil penalty of $850,000 which will be distributed to affected clients.

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