F-Squared Admits Violations, Will Pay $35M To Settle SEC Charges of Bad Back-Testing

F-Squared Investments Inc. agreed Dec. 22 to pay $35 million to settle SEC charges that it misled investors with its performance advertising, and the company admitted violating securities laws (In re F-Squared Investments Inc., SEC, Admin. Proc. File No. 3-16235, 12/22/14).

The Securities and Exchange Commission alleged that F-Squared used a “materially inflated, and hypothetical and back-tested, performance track record” to advertise an investment strategy it called AlphaSector, which became its signature product.

The agency said F-Squared is “the largest marketer of index products using exchange-traded funds.”

In a separate civil case, the SEC is suing F-Squared’s former ...