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Monday, November 16, 2015

Virtus Settles With the SEC

Reported by Neil Anderson, Managing Editor

The team at Virtus [profile] is putting the F-Squared scandal behind them, at least as far as the SEC is concerned. Yet the SEC is still digging into others.

Andrew J. Ceresney
U.S. Securities and Exchange Commission
Director, Division of Enforcement
Today Andrew Ceresney, director of the SEC's enforcement division, confirmed that Hartford, Connecticut-based Virtus agreed to a $16.5-million settlement without admitting or denying the regulatory agency's findings that the subadvised, publicly-traded mutual fund shop fell short when it came to verifying claims made by one of its subadvisors, formerly high-flying ETF strategist F-Squared. Virtus dropped F-Squared last May after the subadvisor settled with the SEC for $35 million and "acknowledged that its conduct violated federal securities laws" when it came to presenting its AlphaSector strategies' inflated, back-tested performance as the real thing.

MFWire could not immediately reach defense counsel Elizabeth Gray at Willkie Farr & Gallagher for comment on the Virtus settlement. A Virtus spokesman declined to comment, pointing to a statement in Virtus' Q3 2015 earnings release, which was issued on October 30; at the time, Virtus revealed that an SEC settlement was awaiting approval by the commission.

"Virtus accepted F-Squared's historical performance misrepresentations at face value and ignored red flags that called these statements into question," Ceresney states. "If an investment adviser chooses to advertise, it is responsible for the content and accuracy of its ads."

"By failing to take steps to verify F-Squared's claims, Virtus solicited investors using materially false and misleading AlphaSector performance data," states Julie Riewe, co-chief of the SEC enforcement division's asset management unit.

Though F-Squared (which sold two months ago to a competing shop) and Virtus have now both put the scandal behind them as far as the SEC is concerned, F-Squared's founder and ex-CEO, Howard Present, didn't settle and has called for a trial by jury. And there may be others targeted by the SEC, too.

"The SEC continues to investigate the conduct of other advisers that potentially misled investors and others with advertisements containing F-Squared's false historical performance data," the agency states in the final line of the announcement of the Virtus settlement.

Meanwhile, even with the SEC now focused elsewhere, Virtus may have to continue to fight. In February a pair of law firms filed a class-action suit against Virtus over the F-Squared scandal. And in March a third law firm unveiled its own Virtus investigation. 

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