The US SEC Warns Against the Disclosure Statements

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Jul 01, 2019 at 12:44 // News

The United States Securities and Exchange Commission (US SEC), a self-regulating agency of the US Federal government, has cautioned the public about the use of “may” statements in advisor disclosures. On April 30 this year, the District of Columbia Court of Appeals upheld charges of slipshod abuses of the Advisers Act that were submitted by the agency’s Division of Enforcement against The Robare Group (TRG).


The US SEC purported that an investment adviser based in Houston, TRG, was incompetent to sufficiently divulge a payment plan in their Form ADV in which Fidelity Investments compensated TRG for certain client investments facilitated by a US global financial services company based in Massachusetts, Fidelity.


Avoid Using “May” in Your Statements


Investment advisers must give “full and fair” coverage of all substantial conflicts of interest, such as TRG’s payment plan with Fidelity Investments. TRG largely relied on the industry practice of describing similar payment arrangements as a type of dispute or event that “may” occur. However, both the court and the SEC determined that TRG’s uncertain “may” disclosure was neither full nor fair.   


The Court of Appeal advised that the use of indeterminate “may” statements may fall short of being sufficient for ADV disclosure purposes. When describing regularly occurring conflicts, “may” statements wrongly suggest that an actual dispute is not a substantial element that customers need to be enlightened about, and does not allow customers to comprehend the origin and type of disputes in a meaningful way.


ETF Approval Could Bring Significant Impact   


In consideration of this ruling, advisers should consider revisiting their ADV responses to guarantee that they continue to meet ever-evolving disclosure requirements, which can sometimes change with the flick of a pen, regardless of somewhat long-standing practices.   


The fact proves that the watchdog is still cautious about the activities related to blockchain and cryptocurrency techs. Up to this time, SEC has been suspending cryptocurrency exchange-traded fund (ETF) decisions. In May, the agency
suspended VanEck Bitcoin ETF approval claiming that they want enough time to gather more important information from the public concerning with the application, and further make a solid platform for massive
institutional money to come into the cryptocurrency markets. 


Nevertheless, the ETF approval or disapproval may have a significant
impact over the price, by helping to bring in institutional funds and further initiate the growth and development of the stable blockchain and cryptocurrency sector.

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