The SEC has taken action against Titan Global Capital Management USA LLC, a FinTech investment adviser based in New York. The charges revolve around the company’s use of misleading hypothetical performance metrics in its advertisements. Additionally, Titan has been accused of multiple compliance failures that led to distorted disclosures concerning the custody of clients’ crypto assets, improper use of “hedge clauses” in client agreements, unauthorized use of client signatures, and the absence of policies pertaining to employee crypto asset trading.
Misleading Advertisements and Hypothetical Performance
From August 2021 to October 2022, Titan, which provides intricate investment strategies to retail investors through its mobile trading app, presented misleading statements on its website regarding hypothetical performance metrics. One such example is the advertisement of “annualized” performance results reaching as high as 2,700 percent for its Titan Crypto strategy. The SEC’s order highlights that these advertisements lacked crucial information. Notably, the hypothetical performance projections assumed that the strategy’s extraordinary performance during its initial three weeks would persist for an entire year. The order emphasizes that Titan’s advertisements violated the marketing rule by failing to implement the required policies and procedures, as mandated by the Commission’s amended marketing rule from December 2020.
Conflicting Disclosures and Liability Disclaimer Language
The SEC’s order uncovers various issues with Titan’s practices. Firstly, the company provided inconsistent disclosures to clients about how it managed crypto assets in custody. Secondly, Titan inserted liability disclaimer language into client advisory agreements, creating a misleading impression that clients had relinquished non-waivable causes of action against the firm. Lastly, despite prior representations, Titan failed to establish policies and procedures governing employee personal trading in crypto assets.
Enforcement and Compliance Reminder
Osman Nawaz, Chief of Enforcement’s Complex Financial Instruments Unit, emphasizes the crucial responsibility investment advisers have in ensuring accurate disclosures to both existing and potential investors, particularly when promoting intricate strategies. The amended marketing rule allows for the use of hypothetical performance metrics, but only under the condition that advisers adhere to requirements aimed at preventing fraud. Nawaz notes that Titan’s advertisements and disclosures distorted the actual nature of its strategies, leading to misleading impressions for investors. This enforcement action serves as a clear reminder for all advisers to prioritize compliance to avoid similar pitfalls.
Resolution and Consequences
Titan cooperated during the investigation and agreed to the SEC’s order acknowledging its violation of the Advisers Act. Without admitting or denying the SEC’s findings, Titan consented to a cease-and-desist order and a censure. Additionally, Titan will pay a sum of $192,454 in disgorgement, along with prejudgment interest. Furthermore, the company will be subjected to a civil penalty of $850,000, which will be distributed to the affected clients.
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Mark Astarita is a nationally recognized securities attorney, who represents investors, financial professionals and firms in securities litigation, arbitration and regulatory matters, including SEC and FINRA investigations and enforcement proceedings.
He is a partner in the national securities law firm Sallah Astarita & Cox, LLC, and the founder of The Securities Law Home Page - SECLaw.com, which was one of the first legal topic sites on the Internet. It went online in 1995 and is updated daily with news, commentary and securities law related links.