Marketing material violations at private funds still in play for SEC (FundFire)

While the SEC’s new private fund rules fell flat following a federal court ruling, it has not stopped the regulator from accumulating cases based on its Marketing Rule that took effect in November 2022. Private fund advisers seem to be in the SEC’s crosshairs when pursuing violations of the Rule’s delineation on the use of performance figures in marketing and advertising materials. A recent case against a hedge fund manager identified numerous deficiencies, including the use of performance results that failed to provide proper disclosures, were misleading and were not presented in a “fair and balanced” way. So far, the SEC has brought 17 enforcement cases and levied more than $2 million in fines, states FrontLine Compliance Founder and President Amy Lynch. She further comments that to date, the SEC has been focused on two areas in its enforcement of the Rule – the use of hypothetical performance and how claims made in marketing materials are substantiated. Ms. Lynch adds that regulators have also been taking closer looks at the use of testimonials and endorsements. And she stresses that performance calculations and time periods shown must be consistent within marketing materials so they are not deemed to be misleading. See FundFire (subscription required), “SEC Sends Message to Hedge Funds in Latest Marketing Rule Action”