The SEC has fined Arlington Capital Management Inc. and Joseph LoPresti, its founder, president and senior portfolio manager, for issuing misleading advertisements about the company's investment performance from at least 2012 to 2015.
The company advertised performance results using backtested results running back to 1995 from computer models collectively known as the Proactive Asset Allocation Strategy, which used proprietary indicators and asset class rankings to trigger signals to buy or sell securities in clients' accounts. Over the years, Arlington Capital Management made adjustments to the models designed to improve return or reduce volatility based on back-tested historical results.
The SEC said that in some instances, the company highlighted the performance of its models in advertisements without disclosing that the represented returns were hypothetical.
In other advertisements, this information was disclosed in small print or in ways that otherwise lacked prominence. And in all advertisements, Arlington Capital Management failed to disclose that the represented performance results were derived using models that had been adjusted over the years with the benefit of hindsight, the regulator said.
The company and LoPresti, who was chief compliance officer at the time, were charged with violating sections of the Advisers Act. The regulator accepted offers of settlement from the parties.
Arlington Capital Management and LoPresti were ordered to pay civil penalties of $125,000 and $75,000, respectively.
The respondents were ordered to cease and desist from committing or causing any violations and any future violations and were also censured.