WASHINGTON (CN) - Massachusetts-based F-Squared Investments will pay $35 million to settle charges that it defrauded investors, the SEC said Monday.
The SEC said it separately charged the company's co-founder and former CEO, Howard Present, with making false and misleading statements to investors.
Wellesley-based F-Squared is the largest marketer of index products using exchange-traded funds, the SEC said in a statement announcing the settlement.
It claimed that it began touting its "AlphaSector" algorithm in October 2008, and quickly "went from losing money to becoming a highly profitable investment manager," the SEC said.
However, F-Squared also claimed a successful 7-year track record for AlphaSector, though the product didn't exist for those 7 years, according to the SEC.
It "back-tested" it by seeing if it would have made money during those 7 years, then advertised it as "not back-tested."
To top it off, the SEC says, "the hypothetical data contained a substantial performance calculation error that inflated the results by approximately 350 percent."
Read the Top 8
Sign up for the Top 8, a roundup of the day's top stories delivered directly to your inbox Monday through Friday.