The Securities and Exchange Commission levied a fine of $1.9 million against Massachusetts Financial Services Co. over allegations that it misled investors with false advertisements.
The SEC alleged that from around 2006 to 2015, the investment advisory company claimed that blending fundamental and quantitative stock ratings would yield better returns than either types of ratings alone.
The company allegedly advertised the results of a hypothetical portfolio of stocks rated "buy" by both the company's fundamental analysts and quantitative model. The results showed that the portfolio had exceeded the annualized returns of either the fundamental or the quantitative rated stocks.
However, the SEC claimed the company failed to disclose that it used a retroactive, back-tested application of its quantitative model when it created its hypothetical portfolio, which carries the risk that the performance was not due to successful predictive modeling. The SEC also said the company falsely claimed that the hypothetical portfolio was based on its own quantitative stock ratings back in the mid-1990s when the company did not even have a quantitative research department before 2000.
Massachusetts Financial Services neither admitted nor denied the findings.