Betterment LLC has accepted a $9 million penalty from the US Securities and Exchange Commission for misrepresentations and poor record-keeping and disclosure practices.
Betterment LLC is a cash management and robo-advisory firm with over $34 billion in assets in management and serving over 770,000 clients. I have acknowledged and agreed to pay $9 million fine from the SEC for past record-keeping, disclosure and misrepresentation malpractices.
Betterment LLC was investigated by the US Securities and Exchange Commission and found guilty of misrepresenting or omitting certain facts while negotiating with its clients. These malpractices occurred between 2016 and 2019 when the company completed a tax loss harvesting exercise. The company did not update its customers about the contract changes and did not keep some vital records.
Automated tax loss harvesting is a mitigation strategy to offset the effects of tax on capital gains from the sale of securities. The services are provided by robo-adviser by automatically trading securities at a loss.
The SEC noted that more than 25,000 accounts were affected by malpractice that resulted in the loss of $4 million in potential tax benefits.
Betterment responded to the allegations without admitting or denying the accusations. Instead, the company said it has made significant investments to make its compliance software more reliable since 2019. It has posited that the company is on a mission to improve people’s lives and continues to look for opportunities to improve its services.
The improvement is taking advantage of the ongoing banking crisis
The admission comes just weeks after Betterment CEO Sarah Kirschbaum-Levy gave an interview about the ongoing banking crisis in the United States. The official emphasized that the company benefited from the continuous transfer of funds from small banks to major banks and the flow of money market funds.
Betterment LLC has made its high-yield cash account more attractive to users by doubling the FDIC insurance for eligible customers. The compounding increased demand for the high-yield account as consumers sought money security, high returns, and liquidity.
Individually High yield account Holders have access to up to 2 million FDIC insurances, 4 million for a joint account, and 8 million for individual and joint accounts.
The company focuses on improving customer confidence and offering security of funds. Betterment is also working with 12 banks to make this happen.