Jury Rules Against Former F-Squared CEO in SEC’s ETF Fraud Case

A federal jury in Boston has found Howard Present, the ex-CEO of F-Squared Investments Inc., liable in the US Securities and Exchange Commission’s civil lawsuit alleging exchange-traded fund fraud. The ruling determined that Present was in violation of the Investment Advisers Act.

According to the regulator, Present sought to defraud investors and acted recklessly in the way he marketed the history of the AlphaSector, which was F-Squared’s flagship product.

The SEC filed its securities fraud lawsuit against Present in 2014. That was when the regulator announced a $35M settlement reached with F-Squared, in which the firm admitted wrongdoing over claims that it misled investors in the way that it falsely marketed AlphaSector as having a lengthy and successful track record that utilized a strategy that a multibillion-dollar wealth manager had developed.

In reality, the data used by the firm to market AlphaSector was based on an algorithm generated by a college student. The historical market data was actually hypothetical and not based on real performance. Also, the F-Squared analyst who determined the hypothetical figures is accused of making a mistake that “substantially inflated” the investment’s performance history.

Present is accused of not ordering the analyst to remedy the mistake and, instead, continuing to use the same inflated performance numbers to market AlphaSector.

F-Squared filed for bankruptcy protection two years ago.

Exchange Traded Funds are investment companies classified as either Unit investment Trusts or open-ended companies although they are not the same as the traditional versions of either. Every ETF must provide a prospectus to investors, or if not, then a Product Description that summarizes key details about the investment and explains how to get a prospectus.

It is important that an investment’s prospectus provide information that is accurate and complete so that investors can make an informed choice about whether the product is right for them. Financial representatives should only recommend an ETF if it is suitable for an investor, while making sure that the latter understands what the investment involves, including all associated benefits and risks.

Contact our exchange-traded fund fraud law firm to request your free case consultation. The SSEK Partners Group represents institutional investors and high net worth individual investors.

Former F-Squared CEO found liable in SEC fraud case, Reuters, October 6, 2017

The SEC Complaint in the Present Case (PDF)

More Blog Posts:
Hilliard Lyons Ordered to Pay $569K For Allegedly Overconcentrating Accounts in Breitburn Energy Partners, Stockbroker Fraud Blog, September 25, 2017

SEC Investigates Pimco Exchange-Traded Fund for Artificial Inflation, Institutional Investor Securities Blog, September 25, 2014

Securities Cases: BlackRock Fund Advisers To Pay $1.5M Over ETF Violation, Wilson-Davis Resolves Market Structure Rule Violation Allegations, & CFTC Adds 71 Foreign Entities to RED List, Institutional Investor Securities Blog, April 30, 2017

Contact Information