Fintech to pay $1M in first violation of SEC’s amended marketing rule

Titan Global Capital Management USA agreed to cease and desist from further violations; a censure; and pay a civil monetary penalty of $850,000, disgorgement of $192,454, and prejudgment interest of $7,598, the SEC said in a press release Monday.

The agency also charged Titan with multiple compliance failures that led to misleading disclosures about custody of crypto assets, improper use of hedge clauses, unauthorized use of client signatures, and failing to adopt an employee policy for trading crypto assets.

The details: Beginning in June 2021, Titan elected to comply with the SEC’s amended marketing rule, according to the agency’s order, but failed to “adopt and implement written policies and procedures or adapt its practices to address these new regulatory requirements.”

Between August 2021 and October 2022, Titan advertised a crypto strategy on its app and website called “Titan Crypto.” During the period, the company claimed Titan Crypto had annualized returns of up to 2,700 percent but based that hypothetical return on the assumption the strategy’s performance in its first three weeks would “continue for an entire year,” the SEC found.

The SEC’s order further found the company made conflicting disclosures about who custodied Titan Crypto’s assets, specifically “concerning who held their assets, how those entities did or did not secure those assets, and whether their assets might be subject to financial risk such as custodian bankruptcy.”

Regarding Titan’s alleged misuse of hedge clauses, the agency said it was “inconsistent with an adviser’s fiduciary duty” and might mislead clients into not exercising their legal rights.

From 2019 to August 2022, Titan also improperly transferred client funds without first obtaining client signatures, the SEC alleged. Specifically, Titan determined certain funds for transfer after clients made requests via the app but applied electronic signatures to authorize the transfers without conferring with the clients personally, per the SEC.

Titan later discontinued this practice after retaining an independent auditing firm and voluntarily disclosed the practice to the SEC.

Compliance considerations: In disclosures to clients, Titan claimed it guarded against conflicts of interest by requiring preapproval from its chief compliance officer before an employee could trade in securities and crypto assets, according to the order. The SEC alleged Titan failed to adopt and implement such strategies.

In July 2022, the SEC said Titan took voluntary remedial measures to improve its compliance programs, including:

• Hiring a new CCO, chief legal counsel, and additional legal and compliance staff;
• Conducting internal audits to review and modify policies and procedures, including its code of ethics and marketing regulations; and
• Adopting new advertising rules designed to be consistent with the SEC’s marketing rule.

Company response: In a statement, Titan neither admitted nor denied wrongdoing.

“We fully cooperated with the SEC’s inquiry and are pleased to have reached a resolution of these issues,” the statement read. “The SEC order acknowledges Titan’s cooperation and remedial efforts since July 2022. … Titan continues to make significant investments to build and enhance its compliance program.”