The Securities and Exchange Commission has ordered Atlas Financial Advisors to pay a $175,000 civil penalty for Marketing Rule violations, including making false and misleading statements that the hypothetical performance of its "Portfolio Shield" investment strategies was verified and validated by Morningstar.
Following the Nov. 4, 2022 compliance deadline for the Marketing Rule, Atlas made false and misleading claims about its investment strategies and their performance, failed to present net performance information alongside gross performance, was unable to substantiate performance claims upon demand by the SEC, and advertised hypothetical performance on its public website without adopting and implementing required policies and procedures, according to the SEC's order.
"Atlas also violated Advisers Act Rule 204-2(a)(16) by not maintaining books and records sufficient to demonstrate the calculation of the performance information in its advertisements, and Atlas violated Advisers Act Rule 206(4)-7 by failing to implement certain of its compliance policies and procedures," the order states.
Following the compliance date, Atlas disseminated material on its public websites that constituted advertisements and that contained false and misleading statements, the order states.
For example, "Atlas’ public website advertised its 'Portfolio Shield' investment strategies through statements and fact sheets that presented hypothetical performance derived from model portfolios, much of which was back-tested by applying the strategies to data from time periods prior to Portfolio Shield’s commencement in 2015," the SEC said.
"Atlas’ website claimed that this hypothetical performance was 'verified by Morningstar,' 'validated by Morningstar,' and that '[e]ach month Morningstar provides an updated Investment Detail Report on the Portfolio Shield Strategy,'" according to the order.
In fact, the order continues, "Morningstar, Inc. never verified Atlas’ calculations nor provided reports on the strategies. Rather, an Atlas employee used a software tool offered by Morningstar to calculate the advertised hypothetical performance."
