The SEC accuses FinTech Titan of false advertisements and lack of compliance. Misleading cryptocurrency performance metrics led to $850K fines and settlements. The lawsuit against Titan Global Capital Management is the first to be filed under the US regulator’s 2020 revised marketing rule.
SEC accuses Titan of ‘misleading information’!
The US Securities and Exchange Commission (SEC) has brought charges against New York-based FinTech investment advisor Titan Global Capital Management USA LLC (Titan) for misrepresenting hypothetical performance metrics in its ads and making multiple compliance errors. According to the SEC’s claim, Titan used misleading information in its advertisements between August 2021 and October 2022. It also introduced hypothetical “annualized” performance results of up to 2,700% for the Titan Crypto strategy.
Today we announced charges against Titan Global Capital Management USA for using hypothetical performance metrics in ads that were misleading. This marks the first violation of the SEC’s amended marketing rule.https://t.co/W23wbvQBsV
— U.S. Securities and Exchange Commission (@SECGov) August 21, 2023
However, the SEC revealed that very important information was omitted in Titan’s advertisements. More importantly, hypothetical performance estimates incorrectly assumed that the strategy’s performance in the first three weeks would continue throughout the year. What’s more, Titan’s ads violated the SEC’s marketing rule as amended in December 2020, as the firm did not adopt the necessary policies and procedures or take the steps outlined in the law.
Compliance errors and misleading statements of the cryptocurrency company
cryptocoin.com As we reported, according to the SEC, the New York-based firm violated the SEC’s marketing rule as amended in December 2020. The company made misleading claims based on “hypothetical performance” on its website. This was the first case of accusation under that rule. SEC senior enforcement officer Osman Nawaz said in a statement:
The Commission changed the marketing rule to allow the use of hypothetical performance measures. But only if consultants comply with reasonably designed requirements to prevent fraud. […] This action serves as a warning to all advisors to ensure compliance.
Titan claimed that performance based on three weeks of data could yield up to 2,700% returns on its Titan Crypto product launched in August 2021. The SEC says the firm has also made unclear statements about cryptocurrency custody and other policies. It also notes that it has not adopted appropriate policies on employee trade in the period until October 2022.
Titan admits the charges and tries to reconcile
Titan is an SEC-registered company. Furthermore, he is a member of the Financial Industry Regulatory Authority. The firm says it reported some issues and cooperated with investigators before accepting the SEC’s decision, whether or not it accepted or denied the SEC findings. Meanwhile, the SEC decision includes reimbursement of $192,454 of unjust gains, with interest. It also foresees a fine of $850,000 to distribute to affected customers. Justin Browder, a cryptocurrency lawyer, makes the following statement on the subject:
The SEC’s lawsuit against Titan demonstrates the continued focus of sanctions on all crypto market participants, including those who are positively registered and regulated.
1/ SEC's case against Titan suggests continued enforcement focus on ALL crypto market participants, including those that have affirmatively registered with and are regulated by the SEC.https://t.co/fOtWcDpmll
— Justin Browder (@jlb410) August 21, 2023
The SEC has made tighter enforcement a regulatory target for crypto investment advisors. It announced its new focus in a statement from the Review Division in February. It also proposed changes to custody rules that are likely to negatively impact cryptocurrency firms. Titan made the following statement on the subject:
We have fully cooperated with the SEC’s investigation and are pleased to have reached resolutions to these issues. The SEC Resolution acknowledges Titan’s collaboration and improvement efforts since July 2022, including hiring a new Chief Legal and Chief Compliance Officer and additional legal and compliance personnel. Titan continues to make significant investments to establish and improve its compliance program.
