NEW YORK – A popular fintech investment adviser backed by celebrities like Will Smith and Kevin Durant has been hit with its second significant penalty from federal regulators in less than a year, after allegedly luring investors with advertisements for a cryptocurrency strategy that touted hypothetical annualized returns as high as 2,700%.

Titan Global Capital Management USA LLC, a firm that gained prominence by targeting millennial and Gen Z investors through a sleek mobile app, agreed to pay more than $1 million to settle charges brought by the Securities and Exchange Commission. The regulator detailed a laundry list of compliance failures, including the use of misleading performance metrics, improper liability disclaimers, and a failure to police employees’ personal trading in crypto assets, according to a litigation release from the Securities and Exchange Commission. The settlement, in which Titan neither admitted nor denied the findings, marks another aggressive move by the SEC to rein in digital-first financial firms whose marketing and compliance practices have failed to keep pace with their rapid growth.

A Test Case for the SEC’s New Marketing Rule

At the heart of the SEC’s case are Titan’s advertisements between August 2021 and October 2022 for its Titan Crypto strategy. The firm allegedly promoted hypothetical performance projections that, while based on just three weeks of data, were “annualized” to produce eye-popping returns of up to 2,700%. Regulators argued this created a profoundly misleading picture of the strategy’s potential, as such a short-term, high-growth rate is nearly impossible to sustain over a full year. The SEC found these advertisements violated the Investment Advisers Act of 1940.

The enforcement action serves as a stark warning for advisers navigating the complexities of the SEC’s modernized Marketing Rule, which was adopted in 2020 and became fully mandatory in late 2022. The rule provides a more principles-based framework for advertising but comes with stringent requirements, particularly around the use of hypothetical performance, which must be fair, balanced, and provide sufficient information for investors to understand the criteria and assumptions used. According to an SEC compliance guide, advisers using such metrics must adopt and implement policies and procedures reasonably designed to ensure the hypothetical performance is relevant to the likely financial situation and investment objectives of the intended audience.

Internal Compliance Failures Exposed

Beyond the headline-grabbing performance claims, the SEC’s order exposed deeper operational fissures within the firm. Regulators found that Titan failed to adopt and implement policies and procedures related to employee personal trading in crypto assets. This oversight created a significant risk of conflicts of interest, such as employees front-running client trades—a core compliance concern for any investment manager. The firm’s policies required employees to obtain pre-approval for personal securities trades, but these rules were not extended to cover the burgeoning area of crypto assets, leaving a critical gap in its compliance program.

Further compounding the firm’s troubles were conflicting disclosures regarding the custody of client crypto assets. According to the SEC, Titan made statements in some documents suggesting it had custody of these assets while simultaneously stating in other documents that it did not. In the wake of high-profile collapses like FTX, clarity and accuracy in custody disclosures have become a focal point for regulators, who are determined to ensure investors are not misled about the safety and location of their digital assets.

Illegal ‘Hedge Clauses’ Draw Regulatory Ire

The SEC also charged Titan with using improper “hedge clauses” in its client agreements. These provisions purported to limit Titan’s liability, creating the impression that clients had waived certain non-waivable causes of action against the firm. For example, a clause stating the firm was not liable for losses except in cases of “gross negligence or willful misconduct” could mislead a client into believing they could not take legal action based on a standard negligence claim. The SEC has long held that such clauses are a violation of an adviser’s fiduciary duty, as they can deter clients from exercising their full legal rights.

This charge underscores the commission’s unwavering stance on advisers attempting to contractually limit their fiduciary obligations. The practice is seen as fundamentally deceptive and contrary to the principles of the Advisers Act, which places the client’s interests above the adviser’s. By including this charge, the SEC is signaling to the industry that it will continue to scrutinize client agreements for any language that could mislead investors about their rights.

A Pattern of Non-Compliance Emerges

For industry observers, the June 17th charges are particularly notable because they represent the second time in less than twelve months that Titan has been in the SEC’s crosshairs. In August 2023, the firm settled separate charges related to misleading performance metrics and other compliance failures, as reported by Reuters at the time. That earlier case also involved the use of hypothetical performance in advertisements that the SEC deemed misleading and found failures in the firm’s compliance policies for employee trading.

That the firm faces a second enforcement action for similar categories of violations suggests a pattern of systemic compliance issues, a fact that likely informed the SEC’s decision to impose another substantial penalty. The repeat offenses paint a picture of a firm whose compliance infrastructure has struggled to mature alongside its public profile and client growth. As reported by InvestmentNews, the latest settlement requires Titan to pay an $850,000 civil penalty on top of disgorgement and prejudgment interest of $192,454, with all funds to be distributed to affected clients.

Regulators Send a Stern Warning to Digital Advisers

In announcing the settlement, Osman Nawaz, Chief of the SEC’s Division of Enforcement’s Complex Financial Instruments Unit, stated, “Titan’s advertisements and disclosures painted a rosy picture of its crypto strategy for investors that was contrary to reality.” His comments emphasize the regulator’s focus on ensuring that all advisers, especially those dealing in complex and volatile products like cryptocurrencies, are held to a high standard of accuracy and transparency in their marketing materials.

The action against Titan is more than just a penalty against a single firm; it is a clear message to the broader fintech and digital wealth management sector. The SEC is actively policing the intersection of technology, marketing, and investment advice. Firms that use aggressive, performance-driven advertising on digital platforms to attract retail investors are under intense scrutiny. The commission has made it clear that embracing new technology does not provide a pass on fundamental, long-standing securities laws designed to protect investors from misleading claims and conflicts of interest.