Skip to Content

13 Investment Advisories Face SEC Action for Spreading False Information

October 28, 2016 Blog

The Securities and Exchange Commission (SEC) recently announced that it has imposed penalties against 13 separate investment advisory firms for negligently providing false information to their clients. The penalties range from $100,000 to $500,000, based upon the fees each firm collected from clients who relied on their misstatements.

BB&T Securities, Shamrock Asset Management and Others Consent to SEC Penalties

According to the SEC, all 13 investment advisory firms shared the same false information. The SEC’s press release states that F-Squared Investments, a now-defunct investment management firm that had previously been ordered to pay $35 million for defrauding investors by spreading false performance information, gave each of the firms inaccurate data regarding the performance of its AlphaSector strategy for investing in exchange-traded funds (ETFs). Rather than seeking to independently confirm F-Squared Investments’ claims, each of these firms repeated the claims to their clients while recommending investments in AlphaSector ETFs.

The 13 firms that relied on F-Squared Investments’ representations without verification were:

  • AssetMark
  • BB&T Securities
  • Banyan Partners
  • Congress Wealth Management
  • Constellation Wealth Advisors
  • Executive Monetary Management
  • HT Partners
  • Hilliard Lyons
  • Ladenburg Thalmann Asset Management
  • Prospera Financial Services
  • Risk Paradigm Group
  • Schneider Downs Wealth Management Advisors
  • Shamrock Asset Management

According to the press release, the SEC is continuing to investigate other advisory firms that may have spread F-Squared Investments’ false performance representations to their clients as well.

SEC: Advisories “Negligently” Spread “False and Misleading” Information

In discussing the case, the Director of the SEC Enforcement Division nicely summarized investment advisory firms’ obligations to their clients with regard to providing investment recommendations:

“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 F-Squared’s claims onto their own clients, who were consequently relying upon false and misleading information when making investment decisions.”

Stated differently, brokers and investment advisors owe a duty of care to their clients. This duty requires, among other things, that they not spread misleading information. As a result, when an advisor receives performance representations from an investment management firm, particularly about the unusual success of the management firm’s own products (F-Squared Investments claimed that AlphaSector had outperformed the S&P Index for several years), that advisor has an obligation to independently verify the information before representing it to be factual.

Zamansky LLC is currently investigating the investment advisory firms penalized by the SEC to determine whether their clients who invested in AlphaSector ETFs may be entitled to compensation. Our stock fraud lawyers are also continuing to monitor the SEC’s investigation into other firms that may have negligently recommended AlphaSector ETFs as well.

Did You Invest in an AlphaSector ETF? Contact Zamansky LLC for a Free Consultation

If you invested in an AlphaSector ETF, or if you received false and misleading information in connection with any other investment, we encourage you to contact us for a free, no-obligation consultation. To speak with an attorney in confidence, please call (212) 742-1414 or submit an inquiry online today.