F-Squared’s former president ordered to pay $12.4 million over false statements

A federal judge in Boston has ruled that the former head of what was once the largest ETF portfolio management firm must pay more than $12.4 million for lying to investors.

In October, Howard Present, former chief executive of F-Squared Investments, was found liable in a civil case brought by the Securities and Exchange Commission.

In his decision Tuesday, U.S. District Judge Leo Sorokin said that Mr. Present had failed to recognize the harm he caused by recklessly making false statements to investors seeking safety after the 2008 financial crisis, according to a report by Reuters.

“He has never meaningfully acknowledged or appreciated his own misconduct,” the judge wrote.

Mr. Present was ordered to disgorge more than $10.85 million in earnings and pay a nearly $1.56 million civil penalty.

In 2014, the SEC sued Mr. Present and said that F-Squared had agreed to pay $35 million and admit wrongdoing to resolve claims it misled investors by falsely advertising the performance of its AlphaSector investment.

At its peak, F-Squared managed more than $28 billion in assets, the SEC said. It filed for bankruptcy in 2015, and its investment strategies and management contracts were acquired by Broadmeadow Capital, a subsidiary of Chicago-based Cedar Capital.

According to the SEC, Mr. Present began marketing AlphaSector in 2008 as being based on a successful wealth manager’s strategy and having a successful track record dating to 2001. Actually, the strategy was based on an algorithm developed many years after 2001 by a college student and applied to historical market data. The strategy’s resulting “performance” was therefore hypothetical, the SEC said, and Mr. Present did nothing to correct errors he was aware of that resulted from the use of inflated numbers in the firm’s advertising and sales efforts.

As InvestmentNews reported in 2016, several investment firms were fined by the SEC in the wake of the initial F-Squared investigation for relying on data supplied by the firm and not doing their own due diligence. Giant Morningstar Inc. also was tarnished for publishing inaccurate data supplied by F-Squared.