On December 18, 2012, the SEC announced the settlement of charges against New England Investment and Retirement Group, Inc. (“NEINV”), a registered investment adviser, and Nicholas John Giacoumakis, the president and sole owner of NEINV, for circulating misleading performance reports to clients and prospective clients and for failing to implement adequate written policies and procedures relating to the distribution of performance information to clients and prospective clients.
NEINV had created various model portfolios in which clients could invest. According to the SEC, on several occasions, NEINV provided clients and prospective clients with reports purporting to compare the historical performance of a NEINV model to a benchmark. However, the reports did not represent the past performance of NEINV’s models, but rather were generated by evaluating how the current investments of a NEINV model would have performed had the model held its current investments throughout the entire time period in the report. According to the SEC, the models did not exist throughout the entire time period in the reports and the models’ holdings had changed during the period in which the models did exist. Moreover, the reports did not disclose that the model results were hypothetical and not actual past performance. According to the SEC, Giacoumakis was responsible for distributing and presenting the reports to several clients and prospective clients of NEINV.
In addition, according to the SEC, during the relevant time period, NEINV failed to implement written policies and procedures reasonably designed to prevent its employees from presenting performance information to clients or prospective clients in a manner that violated the Advisers Act. NEINV’s compliance manual contained a section that described Rule 206(4)-1 of the Advisers Act (which relates to advertisements by investment advisers) but included no policies or procedures specifically addressing the presentation of performance information, especially performance of NEINV’s models. The SEC alleged that NEINV took no steps to implement the manual or otherwise to prevent its employees from presenting performance information in a way that violated the Advisers Act. Based on this conduct, the SEC alleged that Giacoumakis caused NEINV to violate Section 206(4) of the Advisers Act and Rules 206(4)-1 and 206(4)-7 thereunder.
Without admitting or denying the SEC’s findings, NEINV and Giacoumakis agreed to settle the charges. The SEC censured NEINV and ordered NEINV and Giacoumakis to cease and desist from future violations of the relevant provisions of the Advisers Act and to jointly pay civil penalties of $200,000. In addition, NEINV agreed to (i) notify its existing clients of the SEC’s order, (ii) post the SEC’s order on the homepage of its website, (iii) retain the services of an independent compliance consultant to conduct a review of the NEINV compliance policies and procedures relevant to the publication, circulation or distribution of performance reports and (iv) abide by the recommendations of such consultant.