F-Squared paying US$35 million to settle SEC charges

By Marcy Gordon, AP

WASHINGTON–Investment firm F-Squared will pay US$35 million and admit wrongdoing to settle federal regulators’ charges that it defrauded investors with false advertising claims about financial performance.

The Securities and Exchange Commission (SEC) announced the settlement Monday with F-Squared Investments Inc., the largest U.S. marketer of index products using exchange-traded funds. ETFs trade like stocks but mirror other assets such as stock indexes or commodities. The SEC said F-Squared falsely advertised a successful seven-year track record for its ��AlphaSector�� index product, which later became its biggest revenue source and turned the firm from posting losses to being highly profitable.

In fact, the algorithm on which trading for the product was based didn’t exist during the seven-year period from 2001 to 2008, according to the SEC. The agency said F-Squared made the false statements about AlphaSector, in advertising on its website and sent to clients and prospective investors, from September 2008 to September 2013.

As of June 30, about US$28.5 billion was invested in products tied to AlphaSector, according to the SEC.

Separately, the SEC accused F-Squared’s co-founder and former CEO Howard Present in a lawsuit of making false and misleading statements to investors, saying he was responsible for the advertising. An attorney representing Present didn’t immediately return telephone calls seeking comment. Present left the firm this year.