On October 29, 2012, the Securities and Exchange Commission issued an Order Instituting Administrative and Cease-and-Desist Proceedings Pursuant to Sections 203(e) and 203(k) of the Investment Advisers Act of 1940, Making Findings, and Imposing Remedial Sanctions and a Cease-and-Desist Order against BTS Asset Management, Inc. (BTS), a registered investment adviser headquartered in Lexington, Massachusetts.
The Order finds that, from at least the 1990s to 2010, BTS Asset Management’s advertisements for its High Yield Bond Fund Program (“HYP”) claimed that the program had experienced no down years since 1981. The advertisements based this claim on the performance of a model that applied BTS Asset Management’s buy/sell signals to, at various times, a single high yield bond fund, a composite of six high yield bond funds, or a composite of five high yield bond funds.
In 2005, BTS became aware that, in contrast to the model performance reflected in the advertisements, approximately half of HYP’s clients would have experienced a down year in 2004 (with losses of up to 3.3%) based on the application of High Yield Bond Fund buy/sell signals to the funds known by BTS Asset Management to be held by the clients in the program. The fact that, on this basis, a significant percentage of High Yield Bond Fund program clients likely experienced investment results in 2004 that were materially different (i.e., they had a down year) from the claims made in the advertisements BTS disseminated from 2005 to 2010 rendered those advertisements misleading.
BTS consented to the issuance of the Commission order without admitting or denying any of the findings. The Order censures BTS Asset Management, requires the firm to cease and desist from committing or causing any violation and any future violation of Section 206(4) of the Advisers Act and Rule 206(4)-1(a)(5) thereunder, and requires BTS Asset Management to pay a penalty of $200,000.
The foregoing information, which is publicly available on the SEC’s website, is being provided by The White Law Group. The White Law Group is a national securities fraud, securities arbitration, and investor protection law firm with offices in Chicago, Illinois and Boca Raton, Florida.
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