SEC Fines Advisors for Endorsements

Just this week, the Securities and Exchange Commission fined and censured three individual advisers for violating the Investment Advisers Act by using a marketing service that solicited the advisers’ clients to post testimonials/reviews on the advisers’ behalf to social media websites.

The SEC’s testimonial rule states “It shall constitute a fraudulent, deceptive, or manipulative act, practice, or course of business…for any investment adviser registered or required to be registered under section 203 of the Act, directly or indirectly, to publish, circulate, or distribute any advertisement: (1) which refers, directly or indirectly, to any testimonial of any kind concerning the investment adviser or concerning any advice, analysis, report or other service rendered by such investment adviser.”

The three advisers (all at different firms) utilized a marketing consulting firm which sent emails to the adviser’s clients and requested that the clients post a testimonial about the adviser on social media websites such as Yelp, YouTube, Google and FaceBook. For such services, the marketing consulting firm was paid a monthly fee. In each case, the advisory firms had policies which prohibited the use of recommendations, testimonials and endorsements. For such violations, they were each fined $10,000 individually and one advisory firm was also fined $15,000.

In 2014, the SEC issued new guidance on social media and the testimonial rule. This guidance was especially detailed regarding third-party “advisor review” sites. You can review that guidance at: https://www.sec.gov/investment/im-guidance-2014-04.pdf

Rhonda Davis

Author Rhonda Davis

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