Judge Pauley (NYLJ/Rick Kopstein)
A Manhattan federal judge has certified a class to sue an investment management firm accused of misleading the investing public with trumped-up performance data for its trading strategy.
The defendant, Virtus Investment Partners, agreed in 2015 to pay a $16.5 million settlement to the U.S. Securities and Exchange Commission to settle allegations that investors were misled about the performance of AlphaSector, a product offered by F-Squared Investments that uses an algorithm to signal when to buy or sell a nine-industry, exchange-traded fund.
AlphaSector, launched in 2008, became F-Squared’s flagship product and Virtus hired F-Squared as a subadviser for two of its mutual funds. From 2009 to 2013, Virtus’ stock price surged from $10 per share to $247, according to court papers, and within that time frame the company’s revenue grew threefold to $389 million.
But in 2014, F-Squared admitted it falsely claimed that the performance data for the strategy was based on real trades made between 2001 and 2008. The firm paid a $35 million settlement.
Virtus also had marketed AlphaSector based on the product’s supposed eight-year record of live trades.
The plaintiffs in Virtus Investment Partners Securities Litigation, 15-cv-1249, allege that from January 2013 to May 2015, the company and its executives knowingly made false statements to investors about AlphaSector’s performance data.
Southern District Judge William Pauley III is presiding.
The Arkansas Teacher Retirement System was named by the court to serve as the lead plaintiff in the class action.
The class is represented by Labaton Sucharow attorneys Michael Rogers and Michael Stocker; and Bernstein Litowitz Berger & Grossmann attorneys John Browne and David Schwartz.
The defendants are represented by Simpson Thacher & Bartlett partners Joseph McLaughlin and George Wang; and associates Meredith Karp, Shannon McGovern and Daniel Stujenske.