A Marketing Brochure That Fails Rule 4.41 in Four Places

Page 3 - simulated results presented as achievement The simulation is hypothetical performance. It must be labelled as hypothetical everywhere it appears, presented separately from actual results, accompanied by the cautionary statement prescribed by CFTC Rule 4.41(b), and must disclose the assumptions, costs omitted, and that the rules were applied with hindsight. It cannot be juxtaposed with, or blended into, a table of actual returns.

Page 5 - proprietary account presented as the program Actual performance may be shown, but only for accounts traded pursuant to the program being sold. Here the account used twice the leverage and a wider market list: it is a different program. Either exclude it or disclose it as the CTA's own proprietary account, state the leverage and market-list differences, and state that it is not representative of the program being offered.

Page 6 - drawdown derived from the wrong account A risk statistic must be computed from the same account population as the performance table. Recompute from the program accounts and show the actual peak-to-trough figure; a 6% drawdown lifted from a leveraged proprietary account understates risk and is misleading.

Page 7 - testimonial NFA promotional rules restrict the use of client testimonials, and a single client's experience is inherently non-representative. Remove it. At a minimum it could not appear without full disclosure of the client's results and fee arrangement, which no CTA wants to publish.

Page 8 - cherry-picked accounts Program performance must reflect the accounts the CTA actually directed pursuant to the program. Dropping the two accounts that left after losses is classic survivorship bias. Include all eight, or disclose prominently the number of accounts excluded, the reason, and the performance of the excluded accounts.

Missing throughout The CTA's name and registration status, the statement that past results are not necessarily indicative of future results, and - for a CTA - the fact that the program is speculative and may involve leverage.

What must accompany the simulation

1. A clear, prominent label - 'HYPOTHETICAL' or 'SIMULATED' - in the same size and type as the results themselves, not in a footnote.
2. The cautionary statement prescribed by Rule 4.41(b), which warns that hypothetical results have inherent limitations, that they are prepared with the benefit of hindsight, that no representation is made that any account will achieve similar results, and that the results do not reflect the impact of fees, commissions, or slippage where that is the case.
3. A description of how the simulation was constructed: the rules, the software assumptions, whether the market list and leverage match the live program, and what costs were deducted.
4. The period covered and the fact that the simulation was run after the period in question.

May they share a table?

No. Hypothetical and actual results must be kept in separate, clearly demarcated presentations. Combining them into one continuous track record is exactly what 4.41 forbids, because a reader cannot tell where the simulation ended and real money began. If they appear in the same document, there must be a physical break, a heading change, and an explicit statement that the simulated portion does not represent actual trading.

Practical answer: the 22% headline is doing the selling, and it was produced without fees, without slippage, and with knowledge of the outcome. Either present it stripped of the headline and fully qualified, or drop it. A CTA that cannot sell the program on its actual record should reconsider the program, not the disclosure.

No pre-approval. NFA does not clear promotional material before use. The CTA bears the burden of ensuring compliance at the moment of use, and NFA reviews material after the fact - through its advertising review program, member examinations, and in response to complaints.

Recordkeeping

• Retain the brochure, every version, the underlying support for each performance figure (account statements, composite worksheets, simulation code and assumptions), and the list or description of recipients.
• Retention period: five years, with the first two years readily accessible (CFTC Rule 1.31 / NFA requirements).
• Retain evidence supporting the composite - which accounts, why any were excluded, and the calculation of the drawdown statistic.

What the distribution method changes

1. Website posting is continuing distribution. Every page must be current, and superseded performance must be removed or archived with a date, not left live. NFA treats stale performance on a member's site as an ongoing misrepresentation.
2. 4,000 unsolicited emails reach retail prospects who may not be qualified; the material must be complete and self-contained, because there is no accompanying oral explanation. Any email wrapper or cover note is itself promotional material.
3. The blast creates a record obligation: keep the distribution list and the exact file transmitted.

Best practice: a written supervisory review by a designated principal, signed and dated before dissemination, retained with the file. That single control converts most of these issues from findings into evidence of a functioning compliance program.