The U.S. Securities and Exchange Commission has imposed penalties against more than a dozen investment advisory firms because they purportedly spread false claims made by F-Squared Investments about its Alpha Sector strategy. The SEC said that the firms violated securities laws.
According to the regulator, which conducted an enforcement sweep, 13 firms accepted y F-Squared’s false claim that its exchange-traded funds’ investing strategy had outperformed the S & P index for a number of years. The firms touted these claims when recommending the investment to their clients. The SEC said that they did this without first obtaining adequate documentation to confirm that what F-Squared had told them was true.
It was in 2014 that F-Squared admitted to wrongdoing and consented to pay $35M to settle allegations accusing it of using false performance information about its key product to bilk investors. The SEC said that F-Squared falsely advertised its supposed successful multi-year performance record. Unfortunately, that supposed time period for this performance record would have taken place before key algorithm that had been touted for this success even existed.
In reality, backtesting had been used to come up with a “hypothetical performance” from the noted period of supposed success. Yet, F-Squared and ex-CEO Howard Present marketed AlphaSector as “not backtested.” Also, the hypothetical information included a performance calculation mistake that increased results by about 350%.
Penalties for the 13 firms vary in amount from $100K to $500K. These were determined according to the fees they respectively made from strategies related to AlphaSector.
Even though they consented to the entry of the orders stating that they violated sections of the Investment Advisers Act of 1940 and other rules, the investment advisers are not denying or admitting to the findings.
The firms and their payments:
· Paying a $500K fine- Asset Mark
· Paying a $200K fine- Shamrock Asset Management, BB&T Securities, Ladenburg Thalmann Asset Management, Banyan Partners, and Hilliard Lyons
· Paying a $100K fine-Congress Wealth Management, Schneider Downs Wealth Management Advisors, Constellation Wealth Advisors, Risk Paradigm Group, Executive Money Management, Prospera Financial Services, and HT Partners
Investment Advisers Paying Penalties for Advertising False Performance Claims, SEC, August 25, 2016
F-Squared Files for Chapter 11 Bankruptcy, Stockbroker Fraud Blog, July 8, 2015