A ruling in an SEC case has fined a longtime investment advisor nearly $1 million and barred him from the industry for life for what his lawyer says was a technical mistake in the way he footnoted magazine advertisements and provided information to Morningstar.
"It's like rolling through a stop sign and you get the death penalty," said Maitland, Fla., attorney Philip Snyderburn, who represented advisor Max Zavanelli of Florida-based ZPR Investment Management. "We were a little shocked."
An administrative law judge fined investment manager turned RIA Max Zavanelli $660,000 and his firm $250,000 for the errors.
The SEC declined to comment on the case. Snyderburn says his client plans to appeal.
Zavanelli's woes stem from performance data cited in his firm's advertisements.
To be in compliance with voluntary SEC ethical rules known as Global Investment Performance Standards (often referred to as GIPS), Zavanelli was required to report his investment returns over one-, three- and five-year increments, Snyderburn says; instead, Zavanelli reported results over one-, five- and 10-year increments.
As a result, the SEC said in its complaint, "ZPR ... distributed advertisements to prospective clients that omitted material information which would have revealed that the firms historical performance results were underperforming its benchmark index rather than outperforming it."
The footnotes in Zavanelli's ads claimed that he was in compliance with GIPS - an error that Zavanelli has acknowledged.
Securities lawyer Brian Hamburger, who was not involved in the case, said the judge appears to have taken an unusually hard line in part over Zavanelli's unapologetic attitude toward the investigation.
Zavanelli "was found to have ordered his staff to suppress responsive documents to SEC requests and that they had generally been uncooperative," Hamburger says. "Even considering all of the findings, however, it seems that Zavanelli is paying an exorbitant price for his actions; that is the price of his life's work. And all without any findings that his behavior harmed investors."
In 27 years in business, Snyderburn says, Zavanelli has never had a client arbitration case or even a complaint; ZPR's most recent form ADV, filed in March, says the SEC and CFTC have never found the firm or any affiliate to have made a false statement or omission, nor found violations of SEC or CFTC regulations or statutes.
The SEC's decision in his case is all the more remarkable, Snyderburn says, when contrasted with a decision like the one it made in August against hedge manager Philip Falcone.
After Falcone was found to have used $113 million of his clients' money to pay his own taxes, the SEC fined him $18 million and barred him from the industry for five years.
"He gets a five-year bar," Snyderburn says, "and we run six ads and because we are not GIPS-compliant we are permanently barred."
Zavanelli, who was 67 last year when he testified, frustrated the judge during the 15 hours he spent defending himself, his lawyer says. In the decision, Judge Cameron Elliot writes that he found Zavanelli "uncooperative, evasive and discursive."
Zavanelli began his career as an investment manager and, at the request of institutional clients, became an RIA, Snyderburn says.
The judge's decision against Zavanelli also cites a case that the commission brought against him in 1987 involving advertisements. In that instance, Zavanelli had advertised the returns that some of his institutional clients realized after following his advice, Snyderburn says -- adding, "The SEC came in and said, 'That is a hypothetical return; you can't do that.'"
When testifying last year and asking why he didn't fight the 1987 case, Snyderburn says he client told the SEC that he had just started in his career and had no money to defend himself.
"That was 27 years ago," Snyderburn, who says the SEC is wrong in trying to portray his client as a bad apple.
"At the end of the day," Snyderburn says, "even if you don't like a witness's demeanor or if the witness is not deferential, that doesn't mean that you should not focus on what not happened and say we are going to punish you because we don't like your attitude."
- Ex-NAPFA Chairman Sent to Prison in Fraud Judgment
- Should Firms Settle Regulatory Cases? Study Says No
- LPL Fined $950,000 for Failing to Supervise Alts Sale