A Securities and Exchange Commission judge this week banned a Florida separate-account money manager from the securities industry and required him and his firm to pay a fine totaling $660,000 for “misleading” the research firm Morningstar Inc. and the general public in advertisements.
The administrative law judge found that Max E. Zavanelli — a portfolio manager who has compared his success at investing to the legendary Fidelity Investments manager Peter Lynch — misrepresented and omitted important data in newspaper advertisements, its own newsletters and reports for Morningstar.
Some of the firm's performance data falsely implied compliance with the Global Investment Performance Standards, a widely used standard backed by the CFA Institute, the SEC said.
“It is in the commission's interest to deter others from behaving like Max Zavanelli,” wrote the judge, Cameron Elliot, in his opinion dated Tuesday. “In addition to intentionally misleading clients and prospective clients, he refused to accept responsibility for the abdication of his fiduciary duty to his clients.”
Mr. Zavanelli's son, Mark, a fund manager formerly with OppenheimerFunds who was listed on the Barron's Top 100 Fund Managers list for several years, serves as president of the firm, ZPR Investment Management Inc.
“If a firm says they’re GIPS compliant and they fail to adhere to any GIPS requirement, including the advisory guidelines, that person or firm can be barred from the industry and suffer substantial penalties, and it’s something that’s going to have a chilling effect on people saying their GIPS complaint,” said Philip J. Snyderburn, a Maitland, Fla., lawyer representing Mr. Zavanelli. “It’s the equivalent of rolling through a stop sign and you’ve been given the death penalty.”
Mr. Zavanelli will appeal the decision, his lawyer said.
The Orange City, Fla., firm's filings with securities regulators list more than $200 million in assets from 119 accounts, including high-net-worth individuals, pension plans and charitable organizations.
The judge described the elder Mr. Zavanelli as being “defiant,” “uncooperative, evasive, and discursive” during hearings on the case. In a section of the ruling titled “Max Zavanelli's demeanor,” Mr. Elliot wrote that Mr. Zavanelli was disrespectful to the commission's lawyers and failed to directly answer even basic questions, including one asking his name.
Mr. Zavanelli was previously found, in 1987, to have violated the law for misleading claims about investment performance and his educational background, according to the SEC. He settled the charges without admitting guilt.
But in the latest ruling the judge also conceded a point to Mr. Zavanelli, saying the SEC hadn't presented evidence that the firm's actions “actually harmed investors.”
“The ads were totally unspectacular in bringing in new business,” said Mr. Snyderburn, the defense lawyer.
A Morningstar spokeswoman, Margaret Kirch Cohen, did not respond to a request for comment.