Be careful whose performance claims you share. The SEC is publicly taking to task 13 RIAs who used F-Squared products for their clients. And the regulator may not stop with those 13 shops.

Andrew J. Ceresney U.S. Securities and Exchange Commission Director, Division of Enforcement

Yesterday Andrew Ceresney, director of the regulatory agency's enforcement division, unveiled combined penalties of $2.2 million for these RIAs. The SEC accuses the firms of "spreading false claims by [F-Squared] about its flagship product," the AlphaSector strategy, "without obtaining sufficient documentation to substantiate the information being advertised." InvestmentNews and Reuters both covered the news.

Anthony Kelly, co-chief of the asset management unit within the SEC's enforcement division, says that more F-Squared-related cases like this may be on the horizon.

"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," Kelly states.

The SEC hit AssetMark, the TAMP, with a $500,000 penalty, the biggest of the 13. The other RIAs targeted, and their penalties, are: 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; and Shamrock Asset Management, $200,000. The 13 RIAs did not admit to or deny the SEC's findings.

"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 fast," states Ceresney. "These advisers negligently passed many of F-Squared's claims onto their own clients."

This latest regulatory action comes two years after the SEC sent F-Squared a Wells notice, in August 2014. In December 2014, F-Squared agreed to a $35-million settlement with the SEC and acknowledged securities law violations over what the SEC described as "false performance advertising." Meanwhile, F-Squared's founder didn't settle and demanded a jury trial.

By January 2015, several broker-dealers and AssetMark all were reevaluating or limiting advisors' access to F-Squared's products. F-Squared's remaining assets were bought out of bankruptcy by a competitor in September 2015. F-Squared also subadvised a series of Virtus mutual funds, and Virtus sealed its own SEC settlement in November 2015. 

Edited by: Neil Anderson, Managing Editor


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