The SEC ordered 13 advisory firms to pay a total of $2.2 million for spreading false claims initially made by F-Squared Investments related to exchange-traded fund (ETF) performance.
In its report, the SEC stated that the 13 firms "accepted and negligently relied" on F-Squared's claims, which would turn out to be false, that its "AlphaSector strategy" for ETF investments outperformed the S&P 500 Index over the past few years when, in fact, the claim was "substantially inflated."
In July 2015, F-Squared filed for bankruptcy following its agreement to pay $35 million to settle charges it falsely portrayed the performance of its Alpha Sector index, which itself led at least one elderly Wells Fargo investor to file a complaint alleging that Wells Fargo provided deficient due diligence in its purportedly unsuitable recommendation of the F-Squared product for a moderately conservative investor. The SEC similarly imposed a cease-and-desist order against Virtus Investment Advisers, Inc., for spreading the inflated F-Squared/AlphaSector claim to certain mutual fund clients and shareholders.
SEC Enforcement Director Andrew J. Ceresney summed up the discipline thusly: "When an investment adviser echoes another firm's performance claims in its own advertisements, it must verify the information first rather than merely accept it as fact...These advisers negligently passed many of F-Squared's claims onto their own clients, who were consequently relying upon false and misleading information when making investment decisions."
The following 13 firms were listed in the SEC order as firms that improperly spread the false claims, and were issued the corresponding fines:
> AssetMark - $500,000;
> BB&T Securities - $200,000;
> Banyan Partners - $200,000;
> Congress Wealth Management - $100,000;
> Constellation Wealth Advisors - $100,000;
> Executive Monetary Management - $100,000;
> HT Partners - $100,000;
> Hilliard Lyons - $200,000;
> Ladenburg Thalmann Asset Management - $200,000;
> Prospera Financial Services - $100,000;
> Risk Paradigm Group - $100,000;
> Schneider Downs Wealth Management Advisors - $100,000;
> Shamrock Asset Management - $200,000.
If you have invested with any of the aforementioned brokerages or advisory firms, or with any broker or financial adviser whose unsuitable and improper recommendations based on the negligently accepted and disseminated F-Squared claim regarding AlphaSector has proven harmful to your investments or interests, please call The Law Offices of Jonathan W. Evans & Associates at (800) 699-1881 for an investigation and consultation.
Press Release: Investment Advisers Paying Penalties for Advertising False Performance Claims (SEC)