Regulators are attacking an old F-Squared client that eventually sold its F-Squared-powered business back to F-Squared.

Yesterday the SEC charged Reno, Nevada-based Navellier & Associates (and founder and chief investment officer Louis Navellier) with fraud. The case revolves around the RIA's old Viero AlphaSector business, which was powered by F-Squared's now-infamous AlphaSector strategies.

AdvisorHub, InvestmentNews, and Reuters all covered news of the charges.

Three years ago, highflying ETF strategist F-Squared, at the peak of its dominance of the space, fell from grace thanks to an SEC investigation that revealed a two-level marketing problem: first, that much of the claimed AlphaSector track record actually predated the strategy's creation by years and was thus backtested (and not a live track record); and second, that actually backtested data was inflated. A year later, the shell of F-Squared was sold out of bankruptcy, yet the regulatory pain spread to many old F-Squared allies.

The SEC filed the 27-page complaint against Navellier yesterday in the U.S. District Court for the District of Massachusetts. The charges include four counts, and the regular is seeking both restitution for investors and a monetary penalty above and beyond any losses to be salved. The SEC accuses the RIA of doing inadequate due diligence on AlphaSector but marketing it anyway and then selling its $1.4-billion AlphaSector-based business (back to F-Squared, no less, for $14 million) instead of fessing up to clients about the backtesting problems. In the SEC's eyes, Navellier should've known, and eventually did figure out, that something was fishy with AlphaSector.

Navellier himself, for his part, defends what he and his firm did.

"We really look forward to our odds in district court," Navellier tells Reuters. 

Edited by: Neil Anderson, Managing Editor


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