New York, NY: The Securities and Exchange Commission (SEC) has charged a New York based money manager and his firm of false advertising.
The charges stem from claims made by the company on their Twitter, newsletters, and other communications about the success of their investment advice and a mutual fund that the firm manages.
In an SEC order issued against Mark A. Grimaldi and Navigator Money Management (NMM), the SEC found that they selectively promoted and touted the performance of the Sector Rotation Fund (NAVFX) and specific securities recommendations they had made to client in the past. The order found that the firm cherry picked what it chose to highlight, while excluding less favorable data and relevant facts that would have painted a more complete picture.
“The securities laws require investment advisers to be honest and fully forthcoming in their advertising to give investors the full picture.
Grimaldi and his firm are being held accountable for using social media and widely disseminated newsletters to cherry-pick information and make misleading claims about their success in an effort to attract more business.” said Sanjay Wadhwa, senior associate director for enforcement in the SEC’s New York Regional Office.
According to the SEC’s order, The Money Navigator is a newsletter which was used extensively by Grimaldi and NMM to solicit clients. For the Sector Rotation Fund. Grimaldi, who is the majority owner, president and, Chief Compliance Officer of NMM, promoted their successes in a way that was misleading and did not give a full accounting. For example, according to the details provided in the SEC order they misleadingly claimed in a December 2011 newsletter that Sector Rotation Fund was “ranked number 1 out of 375 World Allocation funds tracked by Morningstar.” However, a time period of Oct. 13, 2010 to Oct. 12, 2011 was cherry-picked to broadly acclaim that ranking, and Sector Rotation Fund had a poorer relative performance during other time periods. From Jan. 1 to Nov. 30, 2011, the day before Grimaldi published the ad, at least 100 other mutual funds in that same Morningstar category outperformed Sector Rotation Fund.
The investigation and subsequent SEC order process began in 2008, when the SEC conducted an investigation of NMM and a fund it manages.
The SEC staff conducting the investigation then informed NMM that the newsletters could be considered a solicitation or advertisement under Rule 206(4)-1, which generally prohibits false or misleading advertisements by investment advisers. SEC staff also noted that the newsletters could be considered advertisements under Rule 482, which governs advertisements for mutual funds and other investment companies and has specific requirements for ads containing performance data.
Other violations detailed in the order claim that NMM was advertised as a “five star (Morningstar) money manager” in the newsletters, on the website, and in emails sent out. This would be misleading because Morningstar rates mutual funds, not investment advisors. Grimaldi is also found to have made misleading statements on Twitter. He claimed responsibility for model portfolios in his newsletters that “doubled the S&P 500 the last 10 years.” However, Grimaldi made the claim even though he had no involvement in the model portfolio performance for the first three years.
Grimaldi and NMM, without admitting to any of the specific finding have agreed to pay a $100,000 fine, to be censured, and to comply with certain undertakings including the retention of an independent compliance consulting company for three years. The company also agreed to cease and desist from future violations of these sections of Securities Laws.
Advertising, regardless of their source, can often be misleading with even small discrepancies painting an entirely different picture from reality. Vetting and conducting due diligence is highly recommended for any investor, regardless of whom you are dealing with or what the level of interaction.