SEC Orders Fintech Investment Adviser to Pay Over $1 Million for Alleged Misleading of Investors

The Securities and Exchange Commission (SEC) has taken action against a New York-based financial technology investment adviser, Titan Global Capital Management USA, accusing the firm of misleading investors through the use of hypothetical performance metrics in its advertisements. This marks the first instance of a violation of the SEC's amended marketing rule.

Under the terms of the settlement, Titan Global Capital Management USA has agreed to pay disgorgement of $192,454, prejudgment interest of $7,598, and a civil monetary penalty of $850,000. Additionally, the firm will be censured and required to cease and desist from any further violations. The SEC's enforcement also encompasses allegations of multiple compliance failures on the part of Titan.

The SEC's enforcement action stems from Titan's failure to fully comply with the amended marketing rule despite its efforts to adhere to it starting in June 2021. The firm neglected to "adopt and implement written policies and procedures or adapt its practices to address these new regulatory requirements," according to the SEC's order.

Between August 2021 and October 2022, Titan promoted a cryptocurrency strategy named "Titan Crypto," asserting annualized returns of 2,700 percent. However, the SEC's investigation revealed that this remarkable figure was derived from a hypothetical assumption that the strategy's three-week performance would extend throughout an entire year.

Furthermore, the SEC's order emphasized that Titan provided inconsistent disclosures regarding the custody of assets linked to Titan Crypto. These disclosures led to uncertainties about the entities responsible for holding the assets and the potential financial risks associated with them.

Among the compliance issues highlighted in the order, Titan was charged with misusing hedge clauses in a manner that was considered inconsistent with its fiduciary duty. This practice could have potentially misled clients into forgoing their legal rights.

The SEC also found that, from 2019 to August 2022, Titan improperly transferred client funds without obtaining proper client signatures. Titan allegedly applied electronic signatures to authorize transfers after clients had made requests through the app, without obtaining personal confirmation from the clients.

While Titan neither admitted nor denied wrongdoing, the firm issued a statement on its website acknowledging its cooperation with the SEC's inquiry. The statement highlighted that Titan had taken voluntary measures since July 2022 to improve its compliance programs. These measures included hiring new personnel, conducting internal audits, and adopting new advertising rules to align with the SEC's marketing rule.

This enforcement action underscores the SEC's commitment to upholding transparency and accuracy in financial advertising practices. The case sheds light on the potential consequences for firms that fail to meet regulatory standards, particularly in the context of evolving financial technologies and digital assets.

By fLEXI tEAM