The Securities and Exchange Commission 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.
According to the SEC, these 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 SEC says that 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. Without admitting or denying the findings, the 13 investment advisors consented to the entry of the SEC orders.
The 13 firms and their associated penalties include:
- 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
“When an investment advisor echoes another firm’s performance claims in its own advertisements, it must verify the information first rather than merely accept it as fact,” said Andrew J. Ceresney, director of the SEC Enforcement Division, in a statement. “These advisors 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.”