SEC Charges Investment Adviser with Compliance and Books and Records Failures
Jan. 13, 2022
File No. 3-20702
January 13, 2022 - The Securities and Exchange Commission today announced settled charges against CMG Capital Management Group, Inc., a Pennsylvania-based registered investment adviser, for failing to adopt and implement policies and procedures reasonably designed to prevent false or misleading advertisements concerning the hypothetical, backtested performance of the firm's algorithmic strategies, and for failing to preserve certain advertisements.
According to the SEC's order, between April 2017 and July 2018, CMG advertised hypothetical, backtested performance results for its CMG Opportunistic All Asset Strategy without disclosing certain dissimilarities between the backtest and the live versions of the strategy. Among other things, the order finds, the backtest and the live strategy relied on different securities when constructing a model portfolio, and certain funds used in the backtest were not adequately correlated with the securities they replaced in the live strategy. According to the order, CMG maintained written policies during this timeframe requiring the firm to comply with Commission rules governing advertising. Despite these policies, the order finds, CMG failed to adopt and implement policies or procedures specifically addressing the preparation, presentation, and disclosure of hypothetical, backtested performance results, creating a risk that the firm's advertising of backtested results would contain an untrue statement of a material fact, or be otherwise false or misleading. As set forth in the order, CMG also failed to preserve copies of the advertisements marketing the Strategy that were distributed to prospective clients between January 2016 and June 2016.
The SEC's order finds that CMG violated the books and records provisions of Section 204(a) of the Investment Advisers Act of 1940 and Rule 204-2(a)(11) thereunder and the policies and procedures provisions of Section 206(4) of the Advisers Act and Rule 206(4)-7 thereunder. Without admitting or denying the findings, CMG consented to a cease-and-desist order and a censure, and agreed to pay a civil penalty of $70,000.
The SEC's investigation was conducted by Matthew B. Homberger and supervised by Brendan P. McGlynn of the Asset Management Unit in the Philadelphia Regional Office, with assistance from Stephen M. Graham and Stuart Jackson of the Division of Economic and Risk Analysis. The examination that led to the investigation was conducted by Eric A. Elefante, Christian T. Evans, Scott M. Fisher, and Joseph F. Francks of the Division of Examinations.