Investor Want Wells Fargo Advisers to Pay $100K in Damages Over F-Squared Investment Losses

A client of Wells Fargo Advisors (WFC) is looking to recover at least $100,000 in damages for losses he sustained from investing with F-Squared Investments Inc. The arbitration case comes six months after F-Squared consented to pay $35 million to resolve Securities and Exchange Commission charges accusing the asset manager of making false claims about its flagship investment product’s performance. The 68-year-old widower’s claim will test whether investors can pursue broker-dealers for selling F-Squared products.

The claimant, a moderately conservative investor who was looking for moderately conservative growth for his retirement account assets, began working with a Wells Fargo financial adviser in 2011. The brokerage firm made F-Squared managed-accounts available to advisors in 2013.

According to InvestmentNews, The investor’s advisor put about $900K of the client’s money-most of his savings, says his attorney-in products managed by two ETF strategists. Over 50% of the money went into F-Squared’s AlphaSector Allocator Select. Meantime, the investor said it paid Wells Fargo about $19,000 in fees for recommending the products. He believes that the firm had a conflict when it recommended investments because they came with such high commissions. Also, the fees erased potential capital gains for the claimant.

The senior investor lost about $33,000 on his investments with the F-Squared product. However, he believes he could have made $185,000 if only his funds had been placed in an S & P 500 Index Fund.

When F-Squared, the biggest portfolio builder of ETFs, resolved the SEC charges in December, the asset manager admitted to misleading clients about its AlphaSector strategy for years. Following the strategy’s launch, the indices of AlphaSector became the biggest revenue source for F-Squared.

The SEC accused it of falsely advertising that the strategy’s successful history was based on real investment performance when the algorithm it marketed didn’t even exist during the period referenced. Instead, the information provided about performance history was hypothetical and included a substantive performance calculation error that inflated results by 350%.

Also, because of other errors made by the analyst responsible for determining the performance of the AlphaSector, ETFs were bought right before a price increase and sold prior to a price drop. Even after the analyst tried to explain the error to F-Squared founder Howard Present, the asset manager kept advertising the false data for another five years.

One of the issues in this arbitration case is whether or not Wells Fargo did the proper due diligence to assess whether the numbers presented by F-Squared were accurate. The claimant believes that if the brokerage firm had done its duty correctly, it would have realized that the asset manager’s touted track record for its AlphaSector strategy was problematic. Also, since the investor was moderately conservative, then Wells Fargo should not have recommended the F-Squared product to him.

Elder Financial Fraud
Our senior investor fraud lawyers work with older investors to recoup their losses. Not all investments are suitable for older investors seeking to make modest and conservative gains to preserve their retirement funds. When losses occur because of inadequate recommendations of high-risk investments, the financial consequences can be very serious. Contact our exchange-traded fund fraud law firm today.

Wells Fargo faces major test of broker liability for selling F-Squared, InvestmentNews, June 17, 2015

Exchange-Traded Fund Strategist F-Squared to Pay $35M to Settle Charges that It Misled Investors, Stockbroker Fraud Blog, December 24, 2014
Ex-F-Squared CEO Still Battling SEC, Firm Dealing With Fallout from Securities Fraud Charges, Stockbroker Fraud Blog, March 27, 2015

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