By Kori Eskridge, Fall 2014 Intern
False advertising isn’t just on Craigslist. Strategic Capital Group, LLC, a Washington-based investment advisory firm, paid big money to settle a dispute brought by the SEC. The SEC brought charges against the firm for distributing false and misleading advertisements to investors. According to the SEC, one of these advertisements failed to specify “that the portrayed results were partially based on returns of an index rather than actual, historical returns achieved by Strategic Capital’s recommendations.” Another advertisement overstated the firm’s investment performance because the portrayed results did not deduct fees from the amounts shown. These costly omissions, along with other violations, resulted in the firm paying $600,000 to settle the case without admitting or denying the SEC’s findings.
Providing false or misleading advertisements to potential or current investors is one of the numerous things that is reviewed and governed by FINRA. In 2013, two new regulations became effective regarding rules governing communications with the public. These regulations dictate acceptable, and in some cases, required, procedures for disseminating information to the public via television, print, and video communications. Generally, all ads and communications must meet the following criteria:
- They must be fair and balanced and based on the principles of fair dealing and good faith;
- They may not omit any material fact or qualification that would cause the communication to be misleading;
- They cannot have false, exaggerated, unwarranted, promissory or misleading statements;
- They must contain clear statements and provide balanced treatment of any risks and potential benefits;
- They must provide details and explanations appropriate to the audience that will receive the communication; and
- They may not predict or project performance or imply that past performance will recur.
For additional information about how FINRA and the SEC regulate communications and advertisements from brokers and brokerage firms, click here.