Exchange-traded fund manager F-Squared Investments Inc. has filed for bankruptcy. The firm wants the U.S. Bankruptcy Court for the District of Delaware to allow it to sell its intellectual property, including its investment strategies and contracts to manage money, to Broadmeadow Capital, a Chicago-based money manager.
It was in December that F-Squared agreed to pay investors $35 million to settle Securities and Exchange Commission charges alleging that the firm misled investors about the performance of its Alpha Sector investment strategy. The regulator said that the ETF fund manager falsely marketed the strategy as having a successful track record that was based on actual performance.
Instead, contends the SEC, the data was from a hypothetical performance for a past period that was generated from backtesting. Also, a performance calculation error caused results to be inflated by 350%.
Advisers were attracted to this inflated performance record and F-Squared’s contention that its strategy could get around tough market shifts by engaging in opportunistic trading in and out of multiple industrial-sector ETFs. In seven years, the firm went from being practically a nonentity to having a $28.5 billion strategy as of last year.
F-Squared became the largest marketer of index products using ETFs. By the end of the year that ended in March 2015, however, the firm experienced a close to $8 billion asset decline. It reduced its workforce by 25%.
Following the settlement, investors and lawyers filed their own claims against F-Squared, the financial adviser firms that sold the product, its mutual fund distribution partner, and Wells Fargo Advisors (WFC). The brokerage firm is accused of not performing enough due diligence before deciding to sell F-Squared products to investors.
According to F-Squared’s bankruptcy filings, the firm owes its founder and former CEO Howard Present close to $2 million. The ETF manager also owes hundreds of thousands of dollar in employee contracts and close to a million dollars to a few other parties.
Please contact our exchange-traded fund fraud lawyers if you sustained huge losses from investing in F-Squared products. Shepherd Smith Edwards and Kantas, LTD LLP is a securities fraud law firm that represents investors throughout the U.S.
F-Squared files for bankruptcy, Investment News, July 8, 2015
F-Squared Declares Bankruptcy, Sells Strategies, Financial Advisor, July 9, 2015
Ex-F-Squared CEO Still Battling SEC, Firm Dealing With Fallout from Securities Fraud Charges, Stockbroker Fraud Blog, March 27, 2015
Exchange-Traded Fund Strategist F-Squared to Pay $35M to Settle Charges that It Misled Investors, Stockbroker Fraud Blog, December 24, 2014