In a crackdown on firms that sold F-Squared AlphaSector strategies, the
Securities and Exchange Commission has censured
Ameriprise Financial and ordered it to pay $1.75 million in penalties as well as to disgorge $6.3 million.
The SEC also censured
Horter Investment Management of Cincinnati, Ohio, and ordered it to pay a $250,000 penalty and disgorge $482,595. The agency also ordered Institutional Investor Advisors of Venice, Fla., to pay a civil penalty of $200,000.
The SEC's actions all center on the firms' sales of F-Squared AlphaSector strategies, which were sector rotation strategies based on an algorithm that yielded a "signal" indicating whether to buy or sell nine industry exchange-traded funds that together made up the industries in the S&P 500 Index.
(
More:
SEC uses F-Squared saga to drive home due diligence message)
The SEC said F-Squared miscalculated the historical performance of AlphaSector by incorrectly implementing signals in advance of when such signals actually could have occurred. The agency also said that F-Squared used hypothetical and back-tested historical performance that was inflated substantially over what performance would have been if F-Squared had applied the signals accurately.
In December 2014, F-Squared agreed to pay $35 million to the SEC and admitted wrongdoing regarding falsifying performance numbers in its advertising and marketing materials. In July 2015,
it filed for Chapter 11 bankruptcy protection.
The SEC said that Ameriprise, Horter and IIA based their sales presentations on F-Squared's false performance claims and did not do their own due diligence. The agency said 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.
In the case of Ameriprise, the SEC said that in October 2013, F-Squared instructed Ameriprise to remove references in its advertising materials to specific performance information of F-Squared for periods prior to September 2008.
"Ameriprise knew that F-Squared's changes to the historical performance resulted from an examination of F-Squared by the staff of the commission," the SEC wrote in its cease-and-desist order. "In light of this information, Ameriprise knew or should have known that no AlphaSector performance information for periods prior to October 2008 should have been included in its advertisements. While Ameriprise did make efforts to remove the inaccurate information provided by F-Squared from its marketing materials, Ameriprise continued to distribute advertisements that described inaccurately the AlphaSector strategies as 'stress-tested across the past two bear markets and a bull market.'"
