Articles Tagged with Chapter 11

Exchange-traded fund manager F-Squared Investments Inc. has filed for bankruptcy. The firm wants the U.S. Bankruptcy Court for the District of Delaware to allow it to sell its intellectual property, including its investment strategies and contracts to manage money, to Broadmeadow Capital, a Chicago-based money manager.

It was in December that F-Squared agreed to pay investors $35 million to settle Securities and Exchange Commission charges alleging that the firm misled investors about the performance of its Alpha Sector investment strategy. The regulator said that the ETF fund manager falsely marketed the strategy as having a successful track record that was based on actual performance.

Instead, contends the SEC, the data was from a hypothetical performance for a past period that was generated from backtesting. Also, a performance calculation error caused results to be inflated by 350%.

Advisers were attracted to this inflated performance record and F-Squared’s contention that its strategy could get around tough market shifts by engaging in opportunistic trading in and out of multiple industrial-sector ETFs. In seven years, the firm went from being practically a nonentity to having a $28.5 billion strategy as of last year.

F-Squared became the largest marketer of index products using ETFs. By the end of the year that ended in March 2015, however, the firm experienced a close to $8 billion asset decline. It reduced its workforce by 25%.
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