On August 25, 2016, the SEC announced that an enforcement sweep resulted in penalties for thirteen registered investment advisers that were alleged to have spread the false claims made by F-Squared Investments, Inc. (“F-Squared”), a registered investment adviser. In December 2014, F-Squared settled an enforcement action in which the SEC alleged that F-Squared materially inflated the performance track record of its proprietary “AlphaSector” investment strategy for the period from April 2001 to September 2008.
In the present actions, the SEC alleged that each of the thirteen advisers made material misstatements to their respective clients by negligently relying on F-Squared’s inflated performance record for the AlphaSector strategy. Without admitting or denying the SEC’s findings, the thirteen investment advisers each consented to the entry of an order finding that it had violated record-keeping and anti-fraud provisions of the Advisers Act and related rules under the Advisers Act. Each of the advisers also agreed to pay a civil penalty ranging from $100,000 to $500,000. In the SEC’s announcement, Andrew Ceresney, Director of the Enforcement Division, stated: “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.”