Two robo-advisers agreed to settle SEC charges for making false statements and publishing misleading advertising regarding certain investment products. The settlements are the SEC's first enforcement actions taken against robo-advisers.
According to the SEC Order against Wealthfront Advisers LLC ("Wealthfront"), Wealthfront allegedly made inaccurate statements about a tax loss harvesting strategy that it offered to clients. The SEC claimed that Wealthfront promised clients that it would monitor all client accounts for transactions that may trigger a "wash sale" (i.e., when an investor sells a security at a loss and, within 30 days of the sale, buys the same or an identical security), but the firm did not do so. In addition, the SEC also alleged that Wealthfront improperly re-tweeted client testimonials, paid bloggers for client referrals without the mandated documentation, and had an inadequate compliance program.
According to the SEC Order against Hedgeable Inc. ("Hedgeable"), the firm allegedly posted on its website, as well as on social media, inadequate comparisons of the investment performance of Hedgeable's clients with two robo-competitors. The SEC stated that the performance comparisons were deceiving because (i) Hedgeable included only a small subset of its total number of clients, (ii) Hedgeable's calculation methodology of the comparison with two other robo-advisers was misleading as it was not based off of the competitors' actual trading models, and (iii) the calculations were incorrect even based on Hedgeable's methodologies.
To settle the charges, Wealthfront agreed to pay $250,000 and Hedgeable agreed to pay $80,000.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.
