SEC Charges Investment Advisor With Misleading Investors Regarding its "Biblically Responsible Investing" Strategy

SEC Charges Advisory Firm Inspire Investing With Misleading Investors Regarding its Investment Strategy

The Securities and Exchange Commission today charged Idaho-based investment adviser Inspire Investing LLC with making misleading statements and for compliance failures related to the execution of its “biblically responsible investing” strategy.

According to the SEC’s order, Inspire Investing represented that it used a data-driven methodology to evaluate companies and that it would not invest in companies that had “any degree of participation” in certain enumerated business practices that Inspire determined did not align with biblical values. However, the SEC’s order finds, from at least 2019 to March 2024, Inspire Investing in fact relied on a manual research process and did not typically perform research on individual companies to evaluate them for eligibility under its investing criteria. According to the SEC’s order, Inspire Investing also lacked written policies and procedures setting forth a process for evaluating companies’ activities as part of its investment process, which at times resulted in inconsistent application of its investment criteria. As a result, Inspire Investing invested in companies engaged in activities that did not align with Inspire Investing’s own stated criteria and in which the advisory firm represented that it would not invest.

‘Put Up or Shut Up’ in Office Attendance: Law Firm Leaders Still Hold the Cards

Some firm leaders are serious about reducing draws or limiting bonuses for partners who still aren’t coming to the office in the upcoming months. And when push comes to shove, they may be willing to let even high performers walk, noted multiple recruiters who work with big firms and have spoken with firm management.

***

Many firm leaders right now “would tell you they don’t have as much leverage as they’d like to have,” said Jeff Lowe, senior managing partner and market president for Washington, D.C., at CenterPeak, adding that partners with large practices still have “a tremendous amount of leverage.”

That’s one reason why their attendance hasn’t been as robust as firms would like it to be. “And even though the firm is telling people you have to be here four or even five days a week, partners with substantial practices are saying, ‘Yeah, I know you mean that for some people, but not for me.’”

But Lowe said he’s spoken with a number of firm chairs who’ve said “this is gonna be the year where we really put up or shut up.” That could mean withholding a portion or percentage of a partner’s draw, or reducing bonus pool eligibility, he said.

SEC Charges Advisory Firm Macquarie Investment Management Business Trust with Fraud

The Securities and Exchange Commission today announced registered investment adviser Macquarie Investment Management Business Trust (MIMBT) will pay a total of $79.8 million to settle charges for overvaluing approximately 4,900 largely illiquid collateralized mortgage obligations (CMOs) held in 20 advisory accounts, including 11 retail mutual funds, and for executing hundreds of cross trades between advisory clients that favored certain clients over others.

According to the SEC’s order, from January 2017 through April 2021, MIMBT managed the Absolute Return Mortgage-Backed Securities strategy, a fixed-income investment strategy primarily invested in mortgage-backed securities, CMOs, and treasury futures. Strategy investments included thousands of smaller-sized, “odd lot” CMO positions that traded at a discount to institutional, larger-sized positions. MIMBT valued the odd lot CMOs using prices obtained from a third-party pricing service that were intended for institutional lots only. The pricing service did not provide separate valuations for odd lots. The order finds that MIMBT had no reasonable basis to believe it could sell the odd lot CMOs at the pricing vendor’s valuations, and thousands of odd lot CMO positions were marked at inflated prices. This resulted in MIMBT overstating the performance of client accounts holding the overvalued CMOs.

Tech Exec Charged with AI-Related Misrepresentations and Fraudulent Revenue Recognition

In recent months, the SEC Chair and other government officials have made it clear that they are closely watching for companies that try to catch the AI wave by making exaggerated or false claims about the AI capabilities of their products or services. In the latest example of the crack down on these kinds of AI-related misrepresentations, both the U.S. Attorney for the Southern District of New York and the SEC have filed charges against the former CEO and Chairman of the tech company Kubient. The government alleges that the executive, Paul Roberts, inflated the company’s revenues and also lied about one of its signature products, an AI-powered tool that was supposed to detect ad fraud in the digital advertising industry. There are some interesting features of the charges against Roberts, as discussed below.

The Southern District of New York’s U.S. Attorney’s Office’s September 16, 2024, press release about the criminal charges against Roberts, including a link to the criminal information filed against him, can be found here. The SEC’s September 16, 2024, press release about the charges it filed against Roberts and two other Kubient executives, including links to the agency’s civil complaints, can be found here.

Crypto for Advisors: Are Advisors Investing in Crypto?

3. Can advisors allocate to crypto?

Assuming both clients and advisors are interested, there are still some barriers to investing. Many large brokerage firms and asset managers do not allow investment in crypto including crypto ETFs. Vanguard, one of the world’s largest asset managers, has stated on their website that they do not allow crypto ETFs on their platform because they “do not currently believe that there is an appropriate role for them to play in long-term portfolios.” Similarly, Edward Jones released guidance stating that “cryptocurrencies are highly speculative and [they] don’t offer a way to purchase or hold cryptocurrencies” including crypto funds. While Morgan Stanley recently started allowing their financial advisors to offer bitcoin ETFs, there is a significant caveat. They can only offer the two largest funds – Blackrock’s IBIT and Fidelity’s FBTC – and these can only be offered to clients with a net worth of at least $1.5 million with aggressive risk tolerance.