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Investment Adviser Marketing – New Rules for a New World

SEC Amends Rules Applicable to Investment Adviser Marketing
– Niccolo Barber, Rimon Law

On December 22, 2020, the SEC amended the Investment Advisers Act of 1940, with respect to advertisements and payments to solicitors by investment advisers. The amendments create a single rule (“Rule”) that supplants the existing advertising and cash solicitation rules, marking the first time in more than 40 years the SEC has updated its rules governing adviser marketing.

Among the many amendments, the Rule promulgates new requirements relating to an adviser’s use of performance results in advertising materials. Advisers should keep the following points in mind moving forward:
• Gross vs. Net Performance Results. The Rule prohibits any presentation of gross performance in adviser advertisements unless the advertisement equally presents net performance figures. This restriction is predicated on the SEC’s concern that displays advertising of gross performance without any additional context, could create the impression that investors received the full amount of the presented returns shown. Accordingly, advisers should clearly indicate when performance results are portrayed on a gross basis. In addition, to facilitate investors’ understanding of the advertised performance results, net performance must be presented with at least equal prominence to gross performance results in a format designed to facilitate comparison between them.
• Hypothetical Performance. Advisers sometimes include hypothetical performance in their advertisements, such as model performance, back-tested performance, and targeted and projected performance returns. Although the Rule does not prohibit the use of hypothetical performance in advertising materials, it does prescribe significant conditions to its use based on the SEC’s belief that presentations of hypothetical performance pose a high risk of misleading investors. Specifically, an adviser may not utilize hypothetical results unless it: (i) has adopted and implemented policies and procedures reasonably designed to ensure the hypothetical performance is relevant to the likely financial situation and investment objectives of the intended audience; (ii) provides sufficient information to enable the intended audience to understand the criteria used and the assumptions made in calculating the advertised hypothetical performance; and (iii) provides sufficient information to enable the intended audience to understand the risks and limitations of using hypothetical performance in making an investment decisions.
Of course, the above points are a high-level overview of the detailed requirements promulgated under the Rule. To read more about the Rule you can read my article entitled SEC Finalizes Amendments to Investment Adviser Advertising Rules and to read the full text of the Rule itself or download your own copy, check out SEC Final Rule – Investment Adviser Marketing. Should you have any questions about the Rule and its implications act on your advertising materials, contact me, Nicco Barber, or any of the Rimon lawyers with whom you regularly work.

 

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New York Post-Mortem Right of Publicity Signed into Law

Following up on our posting about rights of publicity in New York State (New York Moves to Expand the Right of Publicity), on November 30, 2020, Governor Cuomo signed S. 5959 into law and New York has finally joined the growing list of States in the United States to adopt and allow the enforcement of a post-mortem right. The legislation, which takes effect 180 days after it was signed (i.e., it only applies to individuals who die on or after that date), adds a new Section (50-f) to the New York Civil Rights Law entitled “Right of publicity” and deals with two categories of deceased persons: “deceased personalities” and “deceased performers.”

The new law in New York applies to deceased persons domiciled in New York State at the time of their death and creates a right of action for the use of names, voices, signatures, photographs or likenesses of “deceased personalities” for commercial purposes without consent and that right extends for 40 years after their death. The law defines a “deceased personality” as an individual “whose name, voice, signature, photograph or likeness has commercial value at the time of his or her death or because of his or her death”. Anyone claiming to represent these rights must register with the New York Secretary of State before making any claim. There are a number of exceptions to prohibited uses, so it is important to read and understand the statute carefully.

In deference to the world of virtual reality, the new law also provides a damage remedy for using a “deceased performer’s digital replica” in a “scripted audiovisual work as a fictional character” or in the “live performance of a musical work” without consent when the use “is likely to deceive the public into thinking it was authorized.” The law defines: (i) a “deceased performer” as someone who “for gain or livelihood was regularly engaged in acting, singing, dancing, or playing a musical instrument.”; and (ii) a “digital replica” as a computer-generated, electronic performance “that is so realistic that a reasonable observer would believe it is a performance by the individual.”

There are also a number of important exceptions to the prohibited uses enumerated in this portion of the new law, and also allows for “a conspicuous disclaimer” that appears in the credits of a scripted audiovisual work and corresponding advertising making it clear it has not been authorized.

For completeness, I should note there is also a section providing for a private right of action for unlawful “dissemination or publication of a sexually explicit depiction of an individual.” This relates to works that have come to be known as “deepfakes,” distributed without approval and although these might also be considered a “digital replica”, the law distinguishes the two categories and makes it clear consent is required and a disclaimer that otherwise might apply to digital replicas is not sufficient.

As you can appreciate, rights of publicity have often been the subject of controversy beyond the financial implications. For example, how does the law characterize a company’s creation and use of the likeness of an athlete or musician in a video game where the company may argue there is a First Amendment right of free expression – inconsistent with the rights of publicity. Again, the law is not always settled and the jurisdiction applicable to the deceased, the rights and the subject matter may well determine the outcome of any legal action. What about so called “industrials” in the entertainment business (e.g., content such as fitness and workout videos, dance instructional videos, company training content or instructions on product use and repair). Since these may not be characterized as either an advertisement or a product, it may not be clear if and how the law will be applied and certainly the answer will depend on these same jurisdictional factors.

For those of you who want context to the right of publicity, one of the first cases to deal with a post mortem right of publicity is the case involving Elvis Presley, whose brand even today is valued in the hundreds of millions of dollars. In this case (Estate of Presley v. Russen, 513 F. Supp. 1339 (D.N.J. 1981)) the court held that the right of publicity evolved from the common law of privacy and the corresponding tort “of the appropriation, for the defendant’s benefit or advantages, of the plaintiff’s name or likeness.” The term “right of publicity” has since come to signify the right of an individual to control the commercial value and exploitation of his name and picture or likeness and to prevent others from appropriating this value for their commercial benefit without their consent. This marks an interesting shift from the right of publicity being viewed as a personal right into a property right that can be exploited after a person’s death.

You can download and read a copy of the final bill here: New York State Rights of Publicity Bill S5959D Final. Of course, if you need more information about this post or have any questions, feel free to contact me Joe Rosenbaum or contact any of the Rimon Law professionals with whom you regularly work.