SEC Charges Fintech Betterment with Material Misstatements Regarding Tax Loss Harvesting Service

Robo-advisor Betterment has been hit by charges from the Securities and Exchange Commission regarding material misstatements and omissions pertaining to a tax loss harvesting service (TLH). Betterment has settled the charges with the SEC without admitting or denying the claims, paying a $9 million penalty.

The SEC’s order claims that, from 2016 to 2019, Betterment misstated or omitted certain material facts concerning TLH, a service that scans clients’ accounts for opportunities to reduce their tax burden. The SEC alleges that Betterment failed to disclose a change in the software related to its scanning frequency, failed to disclose a programming constraint affecting certain clients, and had two computer coding errors that prevented TLH from harvesting losses for some clients.

According to the SEC, these issues adversely impacted more than 25,000 client accounts, resulting in those clients losing approximately $4 million in potential tax benefits.

At the same time, the SEC claims that Betterment failed to provide advance notice of changes to its advisory contract, which is a violation of its fiduciary duty as an investment adviser.

Antonia M. Apps, Director of the SEC’s New York Regional Office, said that Robo-advisors must adhere to the same requirements of all investment advisors:

“Betterment did not describe its tax loss harvesting service accurately, and it wasn’t transparent about the service’s changes, constraints, and coding errors that adversely impacted thousands of clients.”

Betterment consented to the entry of the SEC’s order finding that it violated Sections 204, 206(2), and 206(4) of the Investment Advisers Act of 1940 and related rules. Without admitting or denying the SEC’s findings, Betterment agreed to a cease-and-desist order, a censure, and to pay a $9 million civil penalty that will be distributed to affected clients.


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