NEW YORK (Reuters) – The U.S. Securities and Exchange Commission said on Friday it had settled charges with automated investment management providers Wealthfront Advisers LLC and Hedgeable Inc to resolve allegations that the companies had made false disclosures to their customers.
In its first enforcement actions against robo-advisers, the SEC fined Wealthfront $250,000 and Hedgeable $80,000, the regulator said. The companies did not admit or deny the SEC’s findings.
An SEC order alleged that Wealthfront, one of the largest independent robo-advisers, had made false statements about a tax-loss harvesting strategy it offered to clients. The company had told clients using the service that it would monitor all clients’ accounts for transactions that might trigger a sale of securities that would diminish the benefits of the tax-loss strategy but it failed to do so, the SEC alleged.
For a period of over three years these sales occurred in at least 31 percent of accounts enrolled in the company’s tax-loss harvesting strategy, the SEC alleged.
The SEC’s order also alleged that Wealthfront paid bloggers for client referrals without the required disclosure, improperly re-tweeted client testimonials and did not maintain a compliance program reasonably designed to prevent securities laws violations.
Wealthfront, which manages over $11 billion in assets, acknowledged in a statement that it did not have the proper disclosure in a white paper on its tax-loss harvesting strategy but said the alleged violations had minimal impact on the tax losses harvested for client.
“During the period January 1, 2014 to December 31, 2016, wash sales made up approximately 2.3 percent of tax losses harvested for the benefit of clients,” the statement said. “Therefore the average Wealthfront client would have received 5.67 percent of the total annual harvesting yield versus 5.8 percent.”
In a separate order the SEC alleged that New York-based Hedgeable made a series of misleading statements about its investment performance.
Hedgeable, which had around $81 million in client assets under management, declined to comment.
From 2016 to April 2017, the company posted on its website and on social media performance comparisons between itself and two competitors, the order alleged. The comparisons were misleading because they included less than 4 percent of its clients’ accounts, which had higher-than-average returns, the order alleged.
The regulator also alleged that Hedgeable did not maintain required documentation and did not maintain a compliance program reasonably designed to avoid violations of securities laws.
Reporting by Anna Irrera, additional reporting by Elizabeth Dilts; Editing by James Dalgleish and Phil Berlowitz
from Nettech News http://bit.ly/2EBI3E2
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