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SEC Settles Charges with Robo Adviser for Making False Statements About Investment Performance

On December 21, 2018, the Securities and Exchange Commission issued an Order Instituting Administrative and Cease-and-Desist Proceedings against Hedgeable, Inc., a registered investment adviser.  Hedgeable utilizes a “robo adviser” program, which it offers to individuals, small business owners, trusts, corporations, and partnerships through both its website and social media.  The SEC’s Order alleges that from about 2016 through April 2017, Hedgeable made various misleading statements in advertising and performance data.  Hedgeable submitted an offer of settlement in order to resolve the proceeding.

According to the Order, Hedgeable launched a so-called “Robo-Index” to present comparisons of its performance against that of two unaffiliated robo advisers.  These comparisons were featured on both Hedgeable’s website and various social media sites.  The SEC found that Hedgeable’s method of preparing the Robo-Index had significant material issues.  For example, the SEC found that data from 2014 and 2015 only featured data from a small pool of Hedgeable client accounts and excluded over 1,000 other client accounts.  The SEC alleged that, because of the small sample sizes, the data likely reflected “survivorship bias,” stemming from the fact that the sample size likely only contained clients who received higher than average returns compared to Hedgeable’s other clients.  The SEC also determined that Hedgeable’s calculation methods did not correctly estimate expected returns for a standard client of the other two robo advisers.  Hedgeable allegedly produced the data in the Robo-Index using estimations of the other robo advisers’ trading models rather than using the robo advisers’ actual models.

The SEC also found that Hedgeable did not maintain adequate documentation to corroborate the data displayed in the Robo-Index.  Since Hedgeable was not able to obtain access to independent documentation from the other two robo advisers, it could not provide supporting documentation for the data featured in the Robo-Index.

Hedgeable also posted on its website fact sheets regarding its model portfolio strategies.  These fact sheets featured three materially misleading disclosures, according to the SEC.  For example, Hedgeable allegedly did not keep current the annual benchmark returns for various years.  This made it appear that the model portfolio outperformed its benchmark for prior years to a larger degree than it actually had.  The SEC also found that Hedgeable had made errors in calculating no less than three benchmark returns.  Lastly, the SEC found that Hedgeable had miscalculated model portfolio returns for various exchange-traded funds, causing them to inflate these funds’ returns.

The SEC’s Order also alleges that Hedgeable’s written policies and procedures were not sufficiently tailored to prevent violations of the Investment Advisers Act.  For example, from about 2009 to October 2017, Hedgeable had no written policies and procedures regarding the publication of advertisements on Hedgeable’s website or social media platforms.  The SEC also found that while Hedgeable’s policies obligated employees to receive approval from the Chief Compliance Officer before sending written communications to investors, the language was not expansive enough to cover marketing materials.

Hedgeable agreed to pay a civil money penalty of $80,000.


Parker MacIntyre provides legal and compliance services to investment advisers, broker-dealers, registered representatives, hedge funds, and issuers of securities, among others. Our regulatory practice group assists financial service providers with complex issues that arise in the course of their business, including compliance with federal and state laws and rules. Please visit our website for more information.

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