SEC Charges Investment Advisory Firm Betterment LLC for Misstatements, Omissions, and Failure to Notify Clients

The SEC charged investment advisory firm Betterment LLC with material misstatements and omissions related to its automated tax loss harvesting service, failing to provide clients notice of changes to contracts, and failing to maintain necessary books and records. In order to settle the charges, Betterment agreed to pay a $9 million penalty and distribute funds to affected clients. The order found that from 2016 to 2019, Betterment misstated or omitted several important facts concerning their TLH software, including one change in the software scanning frequency, one programming constraint affecting certain clients, and two computer coding errors that prevented TLH from harvesting losses for some clients. As a result, over 25,000 of their clients lost roughly $4 million in potential benefit as well as failing to provide advance notice of changes to its advisory contract and not maintaining accurate and current books and records. To remedy the issues, Betterment is being issued a cease-and-desist order, censure and paying a $9 million civil penalty to be distributed among impacted clients.