On June 14, 2024, the SEC announced an enforcement action settlement with a Pennsylvania-based hedge fund manager for violating the Marketing Rule under the Investment Advisers Act. The SEC found that the adviser had misled investors by advertising a hedge fund’s investment performance based on the investment performance of a single investor in the fund. While it is not an uncommon market practice to calculate a hedge fund’s since-inception investment returns by simply using the investment performance of a representative “Day 1” investor, the SEC’s primary complaint was that this particular “Day 1” investor was not in fact representative.
