An SEC Administrative Law Judge has ruled that misleading claims of GIPS compliance are material and that the SEC need not prove that an investor actually relied on the misleading statements. The case at issue involved allegedly misleading claims of GIPS compliance in advertising materials. The respondent argued that the materials were not misleading because all of the numbers were accurate. The ALJ opined that the false claims of GIPS compliance made the materials misleading because institutional investors consider GIPS compliance claims when making investment decisions. The ALJ also indicated that the SEC does not have the same burden of proof as securities fraud private litigants who must show actual reliance on misleading statements. The ALJ also made clear that reprints of investment report newsletters are deemed “advertisements”.
OUR TAKE: When reviewing marketing and advertising materials, firms should review every sentence for accuracy and then review the totality of the piece to ensure that the document as a whole is not misleading even if every sentence is accurate. The SEC will presume materiality of any statement a firm includes in its marketing and advertising.