The SEC issued penalties against 13 investment advisory firms for repeating false claims made by an investment management firm about its flagship product.
The "SEC enforcement sweep" found that the 13 firms:
- accepted and negligently relied upon claims by the investment firm that its strategy for investing in exchange-traded funds had outperformed the S&P Index for several years; and
- repeated many of the firm's claims while recommending the investment to their own clients without obtaining sufficient documentation to substantiate the information being advertised.
The SEC highlighted that the investment management firm "later admitted in an SEC enforcement case that what was purportedly the firm's real, historical track record was only back-tested performance that turned out to be substantially inflated." SEC Enforcement Director Andrew Ceresney remarked that:
When an investment adviser echoes another firm's performance claims in its own advertisements, it must verify the information first rather than merely accept it as fact. These advisers negligently passed many of [the firm's] claims onto their own clients, who were consequently relying upon false and misleading information when making investment decisions.
The SEC stated that the penalties assessed against the 13 firms range from $100,000 to half a million dollars and were based upon the fees they each gained from the flagship product.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.
