The SEC is charging that these firms passed along inflated information from the failed F-Squared Investments and its AlphaSector strategy for ETFs.
A baker’s dozen of investment advisory firms has been penalized by the SEC for allegedly “spreading the false claims” of an investment management firm, proving that it can be costly to pass along data
The SEC enforcement sweep yielded 13 investment advisers that the regulator says “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,” SEC officials say. “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.”
SEC officials add that F-Squared later admitted “that what was purportedly its real, historical track record was only back-tested performance that turned out to be substantially inflated.”
Two years ago, F-Squared paid $35 million in a settlement with the SEC over allegations that the firm had defrauded investors. In addition, the firm filed for bankruptcy protection in July 2015.
The penalties assessed against the 13 firms range from $100,000 to $500,000 “based upon the fees each firm earned from AlphaSector-related strategies,” SEC officials say.
“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 fact,” says Andrew J. Ceresney, director of the SEC Enforcement Division, in a prepared statement. “These advisers 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.”
FTF News reached out to the 13 firms and received statements and comments from AssetMark, BB&T Securities, Boston Private Wealth, which has a history with Banyan Partners, and Hilliard Lyons. The other firms did not respond to requests for comment.
“A number of companies were provided with inaccurate and incomplete information by F-Squared regarding their products and made that information available to advisors and clients,” according to the statement from AssetMark officials. “As soon as we were made aware of these discrepancies, we immediately discontinued the availability of the information and put the only product we offered with a connection to F-Squared under review. Ultimately, we made the decision to remove F-Squared from our platform. We’re glad to put this issue to rest and to continue to focus on serving advisors and their clients, which has remained our priority throughout.”
BB&T officials decline to comment.
Boston Private Wealth sent a statement clarifying that the SEC action does not apply to it even though Boston Private Wealth acquired a majority of the assets and certain of the liabilities of Banyan Partners in October 2014. The acquisition happened “well after Banyan Partners terminated its relationship with F-Squared,” according to the Boston Private statement.
“Boston Private Wealth never had a relationship with F-Squared, did not utilize any of F-Squared’s marketing material, research, and/or performance data with any of its clients, and, as a result, is not named in the SEC proceeding and settlement,” according to the Boston Private statement. “While it is our understanding that Banyan Partners is no longer registered as an investment adviser, it is still in existence and it is that entity that was named in the release. Banyan Partners is unrelated to Boston Private Wealth.”
In their order document, SEC officials say that “Banyan Partners, LLC (SEC File No. 801-67092) was an investment adviser registered with the Commission from 2006 through 2014 and is headquartered in Palm Beach Gardens, Florida. Banyan Partners withdrew its registration with the Commission on November 26, 2014.” FTF News made multiple attempts to find contact information for the latest incarnation of Banyan Partners but was unable to do so by deadline.
Hilliard Lyons provided a statement about the situation.
“For more than 160 years, Hilliard Lyons has carefully safeguarded clients’ interests. We continue to do so through our network of 70 offices in 12 states. In an enforcement action with the SEC concerning F-Squared Investments, the SEC did not allege that any Hilliard Lyons clients lost money or were financially injured as a result of investing in F-Squared separately managed accounts,” according to the statement from the firm. “Hilliard Lyons stopped offering F-Squared separately managed accounts in 2013. Hilliard Lyons neither admitted nor denied the SEC findings, and agreed to pay the SEC a civil penalty of $200,000.”
The SEC’s investigation of other advisers is ongoing and the regulator’s Asset Management Unit will “pursue similar enforcement actions against other advisers that potentially misled investors and others with advertisements containing F-Squared’s false historical performance data,” says Anthony S. Kelly, co-chief of the SEC Enforcement Division’s Asset Management Unit, in a statement.
Without admitting or denying the findings, the following 13 investment adviser firms consented to the SEC orders, noting the securities law violations and the financial penalties:
- 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
