SEC Charges Washington-Based Registered Investment Adviser with Marketing Rule Violation

ADMINISTRATIVE PROCEEDING
File No. 3-21987

August 9, 2024 – The Securities and Exchange Commission today announced settled charges against The Pacific Financial Group, Inc. (“Pacific Financial”), a registered investment adviser based in Bellevue, Washington, for violating the Marketing Rule.  The charges concerned Pacific Financial advertising hypothetical performance on its public website without adopting and implementing policies and procedures required by the Marketing Rule.

Under amendments to the Marketing Rule that took effect on November 4, 2022, registered investment advisers are prohibited from including any hypothetical performance in their advertisements unless they have adopted and implemented policies and procedures reasonably designed to ensure the hypothetical performance is relevant to the likely financial situation and investment objectives of the intended audience of the advertisement.  The SEC’s order finds that for more than 13 months, from November 4, 2022, through December 15, 2023, Pacific Financial advertised a quarterly performance report on its public website that provided hypothetical performance for 23 portfolios it offered to clients.  However, Pacific Financial’s policies and procedures failed to specify how it would identify the intended audience of its advertisements or ensure hypothetical performance was relevant to the likely financial situation and investment objectives of the intended audience.

The SEC’s order finds that Pacific Financial willfully violated Section 206(4) of the Advisers Act and Rule 206(4)-1(d) thereunder.  Without admitting or denying the order’s findings, Pacific Financial consented to a cease-and-desist order, a censure, to comply with undertakings not to advertise hypothetical performance without having the requisite policies and procedures, and a civil penalty of $430,000.  

The SEC’s investigation was conducted by Emily Shea, Jonathan T. Menitove, Donna Norman, and Marilyn B. Ampolsk, and was supervised by Colin D. Forbes, Brianna Ripa, Corey Schuster, and Andrew Dean, all of the Enforcement Division’s Asset Management Unit.