SEC Charges Two Robo-Advisers

On Dec. 21, SEC charged two robo-advisors with false disclosures.

  • Wealthfront Advisers LLC (formerly known as Wealthfront), and Hedgeable Inc.

Wealthfront Alleged Violations

  • Wealthfront with $11bn client assets made false statements re tax-loss harvesting.
  • Disclosed to that by employing its tax-loss harvesting strategy it would monitor all client accounts for transactions that might trigger a wash sale, but failed to do so.
  • During the 3 years making this disclosure, wash sales occurred in 31% of accounts.
  • Firm improperly re-tweeted client testimonials and paid bloggers for client referrals.
  • Failed to obtain required disclosure, documentation, and have compliance program.

Hedgeable Alleged Violations

  • Hedgeable Inc had $81mn under management, also made misleading statements.
  • The company posted on its website and social media purported comparison of the
    investment performance of its clients with those of two robo-adviser competitors.
  • Comparisons included less than 4% of accounts with higher-than-average returns.
  • Did not have required documentation and failed to maintain a compliance program.

Settlement

  • Wealthfront ordered to cease and desist from further violations, and fined $250k.
  • Hedgeable is ordered to cease and desist from further violations, and fined $80k.