In a press release, the Securities and Exchange Commission (SEC) announced that Virtus Investment Advisers agreed to pay $16 million to settle charges that they advertised false performance claims.
The SEC alleged Virtus Investment Advisers misled mutual fund investors through client presentations, marketing materials, SEC filings, and other communications that contained false historical performance data about a major ETF portfolio strategy, AlphaSector. Virtus Investment Advisers allegedly falsely stated that the AlphaSector strategy had a performance history dating back to April 2001 and outperformed the S&P 500 Index for several years.
Virtus had hired the investment management firm F-squared as a subadvisor for mutual funds.” During the period in which Virtus used the false and misleading advertisements, its AlphaSector funds’ assets under management grew from $191 million at the end of 2009 to approximately $11.5 billion by 2013.”
Despite Vitrus’ expressing skepticism about AlphaSector’s so-called “live” track record, they allegedly failed to adequately investigate representations being made by F-Squared. Virtus also allegedly did not have records to support the historical track record of AlphaSector that it advertised.
In a separate SEC enforcement action, F-Squared admitted that there flagship product, AlphaSector, boasted a track record as real when it was merely hypothetical and derived from backtesting, not actual past performance.
Brokerage firms that sell such products are required to perform adequate due diligence on the investments to ensure a reasonable likelihood of success, and to evaluate whether the investments are suitable in light of the client’s age, net worth, investment experience, and investment objectives. Firms that fail to perform adequate due diligence, or that make unsuitable recommendations, can be held responsible for losses in a FINRA arbitration claim.
Brokers have a responsibility to perform adequate due diligence on all the investment products they recommend to their clients. Furthermore, such recommendations should be inline with the client’s risk tolerance, investment objectives, liquidity needs and investment experience. Brokers that make unsuitable investment recommendations may be liable for investment losses.
If you were a client of Virtus Investment Advisers and invested in AlphaSector The White Law Group may be able to help. For a free consultation with a securities attorney about your potential to recover your investment losses through FINRA arbitration, please call our Chicago office at (312)238-9650.
The White Law Group, LLC is a national securities fraud, securities arbitration, investor protection, and securities regulation/compliance law firm with offices in Chicago, Illinois and Vero Beach, Florida.
For more information on The White Law Group, visit www.whitesecuritieslaw.com.