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SEC Fines Defunct Robo-Advisor $25K over ‘False Marketing’

By Alex Padalka June 7, 2021

The Securities and Exchange Commission says it has fined and censured a robo-advisor over allegedly "false and misleading marketing materials and performance data."

From June 2018 until October 2019, Emperor Investments’ website aimed at clients and prospects was allegedly misleading on several fronts, including in reference to its performance, according to an administrative proceeding document the SEC published last week.

For example, Emperor allegedly stated that its portfolios beat the market for the preceding 11 years, but that was based on a model application of its investment strategy rather than actual investment performance, the regulator says. Emperor registered with the SEC as an investment advisor in March 2017 and was only in operation from June 2018 to October 2019 — during which it lagged behind the S&P 500 index, according to the SEC. Emperor’s website also allegedly claimed that its average annual return was 16.86%, while according to its own calculations, its return was 5.03% during its months in actual operation, the regulator says.

The company also allegedly falsely stated that its technology had been tested for 11 years and outperformed its unnamed closest competitor since its inception, failing to disclose that the performance was hypothetical as well as the “significant difference” in assets under management at the two firms, according to the SEC.

As of the end of 2018, Emperor had just $621,000 in assets under management, the regulator says, citing the firm’s Form ADV filed in September 2019.

Emperor also allegedly paid for referrals from bloggers — a significant source of new clients for the firm, according to the SEC. In total, the firm paid around $3,400 for the referrals and an additional $12,500 for blogger reviews, the regulator says.

Finally, the SEC alleges that Emperor lacked an effective compliance program capable of address the issues related to the allegedly false and misleading advertising and performance data and the referral payments to bloggers.

Emperor consented to a cease-and-desist order and to pay civil penalties of $25,000 without admitting or denying the findings, according to the regulator.

The SEC adds that the company cooperated with the regulator’s staff, including by being “extremely prompt and responsive in addressing staff inquiries,” and repaid fees to investors.

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Tags:  Technology , Fees and compensation , Regulatory/legal issues , Marketing , Securities and Exchange Commission

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