On August 31, 2012, the SEC charged an investment adviser employee with willfully aiding and abetting violations of Section 10(b) of the Exchange Act and Rule 10b-5 thereunder and Sections 206(1), 206(2) and 207 of the Advisers Act by investment advisory firms with which he was affiliated.
According to the order, the employee was hired in 2003 by a registered investment adviser (now in receivership) to track and calculate the performance of mutual fund allocation programs. The employee also created client pitchbooks including historical performance of the allocation strategies dating back to 2000. In 2004, the employee began calculating hypothetical historical performance that assumed the asset allocations in place in 2004 were also in place as of 2000. Presentations in client pitchbooks compared the historical performance favorably to returns on the S&P 500. In 2006, other employees expressed concerns about the validity of the historical returns and a consultant was hired to evaluate the difference between the advertised performance and actual client returns.
Despite the consultant’s findings that actual returns were significantly less than the advertised returns, and the lack of records upon which to test the calculations made by the employee, client pitchbooks continued to use pre-2005 unverified performance data alongside post-2005 audited performance data. In 2007, the pitchbooks were further modified to label the performance as “historical” rather than “hypothetical” and to include disclosure to the effect that performance figures prior to 2005 were not audited. The SEC also alleges that, as early as 2005, the employee falsely represented himself as a Chartered Financial Analyst to his employer, which listed him as a CFA in presentations, pitches, and required regulatory filings.
In the Matter of Jason A. D’Amato, File No. 3-15004, Rel. No. 34-67777, IA-3455, IC-30192 (August 31, 2012), available at http://www.sec.gov/litigation/admin/2012/34-67773.pdf.