A US jury has found the former chief executive of F-Squared Investments, Howard Present, liable for defrauding investors.
A federal jury in Boston supported the Securities and Exchange Commission (SEC) in its finding that Present was accountable for materially misrepresenting the track record of his firm’s flagship strategy.
‘We are very pleased with the jury’s verdict finding Mr. Present liable for defrauding investors,’ said Stephanie Avakian, co-director of the SEC’s enforcement division.
Present denied wrongdoing but the verdict allows the SEC to ask a federal judge to impose an injunction and order Present to pay penalties.
Wellesley, Massachusetts-based F-Squared admitted fraud charges and paid a fine of $35 million to the SEC on December 22, 2014 for fabricating a seven-year track record from 2001 to 2008 for its flagship AlphaSector strategy.
The strategy was marketed as a quantitative method to avoid downturns by trading in and out of a series of sector exchange-traded funds (ETFs).
Present drafted advertising materials which fabricated returns and sent them to clients and prospective clients. He claimed that AlphaSector was based on a strategy that had been used by clients since April 2001.
The results were backtested, not based on actual performance, and incorrectly calculated. After Present learned that the analyst responsible for producing the back-tested results did so incorrectly, he did not tell the analyst to correct them and continued using inflated results in marketing materials until 2013.
A few investment firms have been affected by the false track records that Present and F-Squared marketed. Reno, Nevada-based Navellier & Associates and its chief investment officer, Louis Navellier, were charged in September with fraud by the SEC.
Navellier’s Vireo AlphaSector Investment Strategies, a range of ETFs based on models provided by F-Squared Investments between 2010 and 2013, used F-Squared’s false track records, which were included in marketing materials provided to investors.
Navellier knew the track records could not be substantiated and sold the Vireo Alpha Sector business to F-Squared for $14 million in the summer of 2013, the SEC alleges.