The SEC charged the Firm with a number of violations of the Advisers Act
Titan is a Fintech Investing App that provides investment advice primarily to retail investors. The SEC charged the Firm with a number of violations of the Advisers Act. Although Titan primarily offers advice on traditional assets, the SEC enforcement action was largely related to the crypto strategy the Firm offered and related Firm policies and procedures.
Titan agreed to pay $192,454 in disgorgement, prejudgment interest and an $850,000 civil penalty that will be distributed to affected clients.
Personal Securities and Crypto Asset Trading Procedures
Titan stated in its ADV that the Firm had adopted personal securities and crypto asset trading procedures to manage conflicts of interest. The ADV further stated that employees were required to receive pre-clearance from the CCO on certain trades in securities and crypto assets.
In reality, Titan had failed to adopt personal trading procedures for crypto assets.
Takeaway: Investment Advisers need to make sure that disclosures in its ADV, marketing materials and other disclosures match the Firm’s actual practices. Additionally, this is one of the first times that we are aware that the SEC focused on crypto asset personal trading procedures in an enforcement action. If you are an Investment Adviser that trades or holds crypto assets, the Firm needs to make sure its personal trading procedures and Code of Ethics addresses and mitigates the conflicts of interest related to crypto assets.
Titan advertised hypothetical performance for its Titan Crypto strategy without adequate material disclosures, provided misleading statements, and without adequate policies and procedures. There were annual returns advertised as high as 2,700% and did not provide adequate disclosure on how the return was calculated.
Takeaway: First, Investment Advisers need to ensure they have adequate policies and procedures related to advertising hypothetical performance prior to advertising hypothetical performance. Secondly, the Firm needs to provide adequate disclosure describing how the return was calculated, any limitations and whether the return was an actual return or a hypothetical return. Lastly, Firms need to consider the audience of the advertisement while developing hypothetical performance and related disclosures.
Disclosure of Crypto Asset Custody
On Titan’s website, they disclosed that crypto asset custody services are provided by a clearing firm. In actuality, the crypto assets were not held at the Clearing Firm. Titan’s disclosures did not disclose where its crypto assets were held.
Takeaway: Investment Advisers need to make sure that statements and disclosures on its website need to match its practices and are consistent with its other disclosures and materials. Further, the crypto asset qualified custodian needs to be disclosed on the Firm’s ADV.
Please contact Aspect Advisors at [email protected] or reach out to your consultant team to discuss any of the topics noted in this article.