By Trevor Hunnicutt
NEW YORK, Nov 16 (Reuters) - Mutual fund company Virtus Investment Advisers Inc will pay $16.5 million to settle charges it touted false performance claims to boost an investment strategy, the U.S. Securities and Exchange Commission said on Monday.
The SEC penalty came after a multi-year investigation by the regulatory agency into performance claims behind the once-$11.5 billion AlphaSector strategy, which the Hartford, Connecticut-based unit of Virtus Investment Partners Inc packaged as a mutual fund.
AlphaSector was based on a strategy, or unique set of rules, governing when to buy and sell exchange-traded funds (ETFs). Regulators said the strategy was sold on the basis of a performance track record that was both hypothetical and inflated.
F-Squared Investments, which had managed the strategy, paid $35 million last year to settle charges and later filed for bankruptcy. The firm had been a top specialist in managing portfolios of ETFs for retail financial advisers and institutional investors.
“Virtus accepted F-Squared’s historical performance misrepresentations at face value and ignored red flags that called these statements into question,” Andrew Ceresney, director of the SEC enforcement division, said in a statement.
Virtus did not admit to or deny the SEC’s findings, the regulator said. The firm’s shares traded up 3 percent on Monday. Phone calls to a spokeswoman and a lawyer representing the firm were not immediately returned.
The settlement does not resolve all of the legal issues relating to the sale of F-Squared strategies. The former CEO of F-Squared, Howard Present, is fighting civil charges in federal court.
Also on Monday, the SEC said it is still investigating “the conduct of other advisers that potentially misled investors and others with advertisements containing F-Squared’s false historical performance data.” (Reporting by Trevor Hunnicutt in New York; Editing by Bill Rigby)