Titan hit with $1 million penalty in ‘perfect compliance cocktail’

investmentnews.com:

An SEC enforcement action against Titan Global Capital Management USA highlights the dangers investment advisors face when using hypothetical returns in their advertising, compliance experts said Monday.

The Securities and Exchange Commission ordered robo-advisor Titan to pay $1,042,454 to settle charges that it violated the agency’s marketing rule when it advertised sky-high performance results for its “Titan Crypto” investment strategy. The SEC alleged that between Aug. 11, 2021, and Oct. 3, 2022, Titan touted annualized returns of 2,700% without providing any supporting context in its advertising, according to Monday’s SEC order.

For instance, the firm did not mention that the return was based on a “purely hypothetical account” rather than an actual account and that the promised return was based on the assumption that the “strategy’s performance in its first three weeks would continue for an entire year,” the SEC order states. “Titan also failed to provide information in its advertisements about the risks and limitations of using this hypothetical performance in making investment decisions.”

The SEC said the case is its first enforcement action based on the new marketing rule that went into force last November. That regulation overhauled how advisors can promote their firms for the first time since 1961. Major provisions include permitting client testimonials and allowing the use of past performance metrics with many related restrictions.

Titan agreed to comply with the marking rule beginning in June 2021 — well before the compliance deadline in November 2022 but after the rule went into effect in May 2021. In addition to its violations regarding hypothetical advertising, the SEC charged Titan with failing to adopt