November 29, 1989
TO: INVESTMENT ADVISER MEMBERS NO. 57-89
INVESTMENT ADVISER ASSOCIATE MEMBERS NO. 57-89
RE: ADVISER SANCTIONED FOR VIOLATIONS OF ADVERTISING RULE
__________________________________________________________
On October 25, 1989, the Securities and Exchange Commission
imposed sanctions on an investment adviser for violations of
Section 206 and Rules 204-2 and 204-3 under the Advisers Act. A
copy of the administrative proceeding order is attached.
According to the SEC order, the adviser published
advertisements which were materially false and misleading in that
they: "(a) contained material misrepresentations concerning the
profitability of the recommendations made by the adviser and
trades made by the adviser on these recommendations...; and (b)
failed to disclose (i) that adviser's recommendations referred to
in its advertisements consisted entirely of options
recommendations; (ii) what adviser's performance would have been
had all of its recommendations been included; and (iii) the time
parameters of each advertised period of results."
The SEC also sanctioned the adviser for failure to comply
with Rule 204-3 in that adviser failed to offer to furnish to its
clients or prospective clients a disclosure statement which
contained all of the information required by the brochure rule.
Finally, the SEC sanctioned the adviser for violations of
Rule 204-2(e)(1) for keeping its cash receipts and cash
disbursement journals outside of the territorial United States
where they would not be easily accessible for examination by
representatives of the SEC.
Among other things, the SEC's sanctions required the
adviser to: (a) keep its books and records within the United
States; (b) offer its clients and prospective clients a
disclosure statement; (c) mail a copy of the order to its
existing clients and newsletter subscribers; (d) refrain from
publishing any advertisements not in accordance with the Advisers
Act and the rules thereunder; and (e) employ an attorney familiar
with the provisions of the Investment Advisers Act to review and
revise any advertisements that do not comply with the Advisers
Act and to submit an affidavit of compliance to the SEC within
two months of the issue date of the order.
Robert L. Bunnen, Jr.
Assistant General Counsel
Attachment