Investment advisers paying penalties for advertising false performance claims


The Securities and Exchange Commission (SEC) has announced penalties against 13 investment advisory firms found to have violated securities laws by spreading the false claims made by an investment management firm about its flagship product.

An SEC enforcement sweep of investment advisers found that the 13 firms accepted and negligently relied upon claims by F-Squared Investments that its AlphaSector strategy for investing in exchange-traded funds (ETFs) had outperformed the S&P Index for several years. The firms repeated many of F-Squared’s claims while recommending the investment to their own clients without obtaining sufficient documentation to substantiate the information being advertised. F-Squared later admitted in an SEC enforcement case that what was purportedly its real, historical track record was only back-tested performance that turned out to be substantially inflated.

The penalties assessed against the firms range from $100,000 to a half-million dollars based upon the fees each firm earned from AlphaSector-related strategies.

Andrew J. Ceresney, SEC
Andrew J. Ceresney, SEC

Andrew J. Ceresney, Director of the SEC Enforcement Division, said:

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.”

Anthony S. Kelly, Co-Chief of the SEC Enforcement Division’s Asset Management Unit, added:

The Asset Management Unit continues to investigate and pursue similar enforcement actions against other advisers that potentially misled investors and others with advertisements containing F-Squared’s false historical performance data.”

For the full announcement, click here.

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Investment advisers paying penalties for advertising false performance claims

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