Thirteen large firms, including AssetMark, a firm run by Charles Goldman, a former member of the board of directors of the CFP Board, are paying the price for passing along faked performance data from a third-party manager.

Also on Thursday, the SEC announced it adopted rules intended to combat false advertising.

The firms gave clients performance data about products sold by F-Squared Investments, the SEC said. F-Squared is one of the largest marketers of index products using ETFs. In an earlier SEC case, the firm admitted it used a hypothetical, back-tested performance record to sell its branded AlphaSector strategy.

Goldman, a former high-ranking executive with both Fidelity Investments and Schwab Institutional, is CEO of Concord, Calif.-based AssetMark, formerly Genworth Wealth Management. AssetMark manages $20 billion in client assets.

Once AssetMark learned about the deception, it stopped offering those products to clients, Goldman's firm said in the statement.

"We’re glad to put this issue to rest and to continue to focus on serving advisers and their clients, which has remained our priority throughout," the statement said. Goldman declined to comment personally.


Each of the firms agreed to pay fines; none admitted guilt. The size of the fines correspond to the amount of commissions each firm collected for selling F-Squared products.

“When an investment adviser echoes another firm’s performance claims in its own advertisements, it must verify the information first rather than merely accept it as fact,” Andrew Ceresney, director of the SEC's enforcement division, said in a statement.

(Bloomberg News)
Andrew Ceresney, head of enforcement for the SEC. (Image: Bloomberg)

The cases stem from a 2014 SEC case in which F-Squared agreed to pay $30 million to refund investors' losses, and another $5 million in a penalty.

"It's a reminder that you can't take everybody's word at face value," says Edward Fjordbak, chief compliance officer with Shamrock Asset Management in Dallas, which will pay $200,000 for its role in spreading the deception. "That’s pretty much the story. And that's a shame.”


Minutes after announcing the 13 fines, the commission also announced new rules intended to reduce misleading or fraudulent advertising and communications by advisers.

The rules will require advisers to provide more information about their separately managed accounts. Advisers must start complying with them by Oct. 17 of next year.

Shamrock is now in the process of reconsidering how to advertise its outside managers' past performance to clients in the future, Fjordbak says.

"If someone chooses to lie, it's very difficult to ascertain whether they are telling the truth in the first place," Fjordbak says, "and this puts us in the position of being able to say very little in order [to clients] to stay within the confines of the regulation."

Shamrock sold F-Squared's products between 2011 and 2014, he said, adding that none of his firm's clients have lost money in the investments.

He praised the commission for uncovering the fraud.

"I just hope the SEC continues to do its good work," he said. "We have no animosity here."

Several of the other firms provided statements acknowledging the fines and expressing their commitment to investors.

Others took a different tack.

"Yeah, what's up?" Don A. Linzer, CEO of Schneider Downs Wealth Management Advisors in Pittsburgh, said after taking a call from a reporter inquiring about the case. He then hung up in response to a question about the fine.


Boston Private Bank sought to distance itself from the case. In May, 2014, it acquired one of the firms, Banyan Partners, shortly before the SEC's actions against F-Squared. Banyan agreed to pay $200,000, according to the SEC release.

"Boston Private Wealth never had a relationship with F-Squared," the Boston Private statement said.

"Banyan Partners," it adds, "it is not affiliated with Boston Private."

However, Boston Private owns most of Banyan's former operations and assets, which were almost $4.6 billion at the time of the buyout. Banyan's former main telephone number rings at Boston Private.

"We don't have any comment on that," said a man who answered the phone in the office of the former co-CEOs of Constellation Wealth Advisors at First Republic Bank. First Republic acquired Constellation last year when the RIA had nearly $6.2 billion in AUM. Constellation agreed to pay a fine of $100,000.

The former co-CEOs, Eric Tramontano and Jon Goldstein, work for Republic as portfolio managers.

It's unclear what entity will pay the fines in the cases of the two bank-owned firms, Banyan and Constellation, given that neither exists any longer and the parent companies are neither named nor mentioned in either case.

The SEC declined to respond to a question requesting clarification.

Other firms that agreed to pay $200,000 fines include: Manhattan-based Ladenburg Thalmann Asset Management ("As of now, we don't have a comment," its CEO Philip Blancato said when reached by phone), sister company to the large broker dealer network of the same name; Hilliard Lyons of Louisville, Kentucky, and BB&T Securities of Richmond, Virginia.

Those paying $100,000 fines include Congress Wealth Management in Boston; Executive Monetary Management in New York City; HT Partners of Centerbrook, Conn; Prospera Financial Services of Dallas and Risk Paradigm Group in Austin, Texas.

BB&T, Congress Wealth, Executive Monetary Management, HT Partners and Risk Paradigm did not return calls or emails seeking comment.

"The SEC did not allege that any Hilliard Lyons clients lost money or were financially injured as a result of investing in F‑Squared separately managed accounts," Hilliard Lyons said in a statement pointing out that it neither admitted nor denied the SEC's findings in agreeing to the fine.

In a statement, Prospera said the F-Squared marketing went to a limited number of its advisers and clients. "We expect this will resolve the issue and are moving forward," it added.


It's doubtful that the SEC's new disclosure rules will make any difference at all to investors seeking to understand if their money is safe when they hand it over to advisers, said Hugh Berkson, president of the Public Investors Arbitration Bar Association or PIABA.

However, Berkson said the new rules could have another benefit.

"All of this performance data was completely imaginary," Berkson says of F-Squared's highly touted, yet entirely fictitious record. "If firms' failure to engage in due diligence exposes them to penalties like this, one would hope that, when they run across oddities like F-Squared in the future, maybe they will think twice about promoting them in the first place."

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