The U.S. Securities and Exchange Commission has taken action against Titan Global Capital Management USA LLC, an investment adviser based in New York, for employing misleading hypothetical performance metrics in their advertisements. FinTech investment adviser Titan is charges for misrepresenting the hypothetical performance of investments and other breaches, according to an Aug. 21 news release.
"When offering and marketing complex strategies, investment advisers must ensure the accuracy of disclosures made to existing and prospective investors," Chief of Enforcement’s Complex Financial Instruments Unit Osman Nawaz said in the release. "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. 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 SEC has also charged Titan with several compliance failures that resulted in deceptive disclosures regarding custody of clients' crypto assets, the inclusion of inappropriate "hedge clauses" in client agreements, the unauthorized use of client signatures and the lack of policies pertaining to crypto asset trading by employees, the release said. This comes as a result of Titan's engagement in multiple complex strategies targeted at retail investors through its mobile trading app.
The SEC's order revealed that from August 2021 to October 2022, Titan presented deceptive information on its website about hypothetical performance, particularly by advertising "annualized" performance figures that reached as high as 2,700% for its Titan Crypto strategy, according to the release.
However, the SEC's order pointed out these statements were misleading since they omitted crucial information, such as the fact that the hypothetical performance projections were based on the assumption that the strategy's initial three-week performance would continue unchanged for an entire year, the release reported.
The order further indicates Titan breached the marketing rule by promoting hypothetical performance metrics without having established necessary policies and procedures or fulfilling other requirements outlined by the Commission's marketing rule, which was updated in December 2020, the release said.
The SEC's order additionally disclosed Titan exhibited conflicting disclosures to clients concerning the custody of crypto assets, incorporated liability disclaimer language into client advisory agreements that inaccurately implied clients had relinquished non-waivable legal actions against Titan, and, in contradiction to its representations, neglected to formulate policies and procedures related to employees' personal trading in crypto assets, the release said.
The order also states Titan voluntarily reported to the SEC staff their oversight in obtaining client signatures for certain types of transactions in client accounts and subsequently agreed to resolve associated charges. During the investigation, Titan cooperated fully and consented to the entry of the SEC's order acknowledging its breach of the Advisers Act, the release reported
In response to the findings, Titan agreed to a cease-and-desist order, a censure and the payment of $192,454 in disgorgement, prejudgment interest, along with a civil penalty of $850,000 that will be distributed to the impacted clients, according to the release.
