SEC sanctions firm over crypto hype

New York–based robo-advisor Titan Global Capital Management USA LLC has been sanctioned by the U.S. Securities and Exchange Commission (SEC) for misleading investors with its hypothetical performance marketing.

The SEC charged the firm, which offers managed strategies to retail investors through its mobile app, for misrepresenting hypothetical performance of its crypto trading strategies in its marketing to investors, along with various other compliance failures.

For instance, the SEC alleged the firm advertised “annualized” performance for its crypto strategy that showed returns of 2,700%, without disclosing that this assumed the strategy’s performance over a three-week period would continue for a full year.

The SEC also alleged the firm made conflicting disclosures about how it custodied cryptoassets, included inaccurate liability disclaimer language in its client advisory agreements, and failed to adopt policies concerning employees’ personal trading in cryptoassets.

The firm settled the allegations without admitting or denying the SEC’s findings. It agreed to a cease-and-desist order, a censure, and to pay almost US$200,000 in disgorgement and a US$850,000 penalty.

“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,” said Osman Nawaz, chief of the SEC enforcement division’s complex financial instruments unit, in a release.

The charges are the first to be made under the SEC’s revised rules on marketing, which were adopted in late 2020.

“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,” Nawaz said.

James Langton

James is a senior reporter for Advisor.ca and its sister publication, Investment Executive. He has been reporting on regulation, securities law, industry news and more since 1994.