According to a recent InvestmentNews article, Ameriprise Financial was ordered by the Securities and Exchange Commission (SEC) to pay $1.75 million in penalties and to disgorge $6.3 million because of F-Squared sales. The SEC also censured Horter Investment Management in Cincinnati, Ohio, for its sales of F-Squared Alpha Sector sales and ordered it to pay $250,000 in penalties and disgorge $482,595. Institutional Investor Advisors in Venice, Florida, was also ordered to pay a civil penalty of $200,000. F-Squared sales were sector rotation strategies based on an algorithm that yielded a “signal” indicating whether to buy or sell nine industry exchange-traded funds. F-Squared allegedly miscalculated the historical performance of AlphaSector by incorrectly implementing signals in advance of when such signals actually could have occurred. It also used hypothetical and back-tested historical performance that was inflated substantially over what performance would have been if F-Squared had applied the signals correctly. In December 2014, F-Squared paid $35 million to the SEC and admitted wrongdoing regarding falsifying performance numbers in its advertising and marketing materials. In July 2015, it filed Chapter 11 bankruptcy protection.
The SEC claimed that Ameriprise, Horter and IIA based their sales presentations on F-Squared false performance claims and did not do their own due diligence. The firms “failed to adopt and implement their own adequate policies and procedures to check out the claims, which should have prevented the firms from promoting the inaccuracies to clients,” according to the SEC. Ameriprise did not remove references in its advertising materials to specific performance information of F-Squared for periods prior to September 2008, and these are all against securities laws.
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