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SEC Charges Violations of Testimonial Rule

 The SEC settled five enforcement actions against two investment advisers, three investment adviser representatives, and the principal of a third party marketing firm for utilizing the internet to disseminate unlawful client testimonials.  Three of the actions involved a testimonial program sold by the third party marketing firm that solicited client testimonials for publication on social media websites.  Clients lauded the subject firms for service, returns, knowledge, and market access. One of the firms sought positive reviews on Yelp that it would endorse.  One of the firms posted client videos on YouTube.  The SEC charged the principal of the third party marketing firm with causing his client’s violations.  The testimonial rule (206(4)-1(a)(1)) prohibits advertisements that refer to any testimonial about advice, analysis, or services.

OUR TAKE:  Last September, OCIE warned advisers against misleading marketing practices.  It’s hard to believe that advisers could violate the testimonial rule, a clear prohibition that has been in effect for decades.  If you don’t know the rules, hire a compli-pro to ensure you don’t violate the black letter rules.