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June 17, 2020 at 02:53 PM
After a 10-year battle including a Supreme Court case in which he prevailed over the Securities and Exchange Commission, former RIA Raymond Lucia Sr. and his former advisory firm, Raymond J. Lucia Cos., agreed Tuesday to settle charges related to the marketing of their “Buckets of Money” retirement investing strategy.
Lucia will pay a $25,000 fine and drop a case he has filed against the SEC.
The SEC’s order finds that from 2006 through 2010, presentations of the strategy included slides that claimed to show “backtests” of how it would have performed through a series of historical market conditions.
“The self-described ‘backtests’ were presented as empirical proof that the Buckets of Money strategy provided income for life and growth of principal under difficult market conditions,” the order states.
The order finds that Lucia was responsible for the contents of the presentation, and was personally involved in preparing and reviewing the so-called “backtests.”
The order further finds that “Lucia’s presentation of the ‘backtests’ omitted material information about the effects of certain assumptions, and failed to disclose that the ‘backtests’ did not follow the strategy’s periodic asset reallocation and that one ‘backtest’ had no support for the numbers presented as the results.”
Court Battle
The Supreme Court case, Lucia v. SEC, centered not on Lucia’s conduct but on the way the SEC appointed its judges.
In 2010, the SEC sent Lucia a deficiency letter stating that he and the firm had not done enough testing to show that they had validated the strategy.
Lucia argued, in documents filed with the SEC administrative law system, that the SEC had made no allegations of misappropriation, investor losses or complaints from seminar attendees.
He also argued that he stopped talking about backtesting immediately when the SEC sent him the deficiency letter.
An administrative law judge imposed $300,000 in civil penalties and a lifetime bar from the investment industry. Lucia appealed to the SEC itself, arguing that the administrative law judge who ruled on the matter was not constitutionally appointed.
