Securities and Exchange Commission (SEC) Sanctions Investment Adviser and President/Chief Compliance Officer for False and Misleading Advertisements
On January 30, 2014, the SEC filed an order imposing remedial sanctions and a cease-and-desist order on Navigator Money Management, Inc. (NMM), a New York-based investment adviser, and Mark A. Grimaldi, NMM’s president, majority owner and chief compliance officer, for issuing false and misleading advertisements in violation of Section 17(a) of the 1933 Act, Section 206 of the Advisers Act and Section 34(b) of the 1940 Act. The SEC’s order alleged that NMM and Mr. Grimaldi “selectively touted” the past performance of an NMM-managed fund, as well as specific securities recommendations to clients, “cherry-picking the best recommendations and ignoring less favorable recommendations.” The order also alleged that the “misrepresentations and omissions were made possible, in part, by NMM’s failure to adopt and implement written policies and procedures reasonably designed” to prevent them.
According to the SEC’s order, Mr. Grimaldi used newsletters he controlled to advertise and promote the Sector Rotation Fund, a mutual fund managed by NMM. One issue of The Money Navigator asserted that the fund was ranked first out of 375 comparable funds tracked by Morningstar without disclosing that such claim was true only for the time period from October 13, 2010 through October 12, 2011 and that the fund had poorer relative performance for other periods (for example, at least 100 comparable mutual funds had better performance for the period from January 1, 2011 through November 30, 2011, the day before the newsletter was published). The same article claimed that the Sector Rotation Fund produced an average annual return of 10.25% from August 31, 2002 through October 31, 2011 when, in reality, the fund did not exist prior to December 30, 2009 (10.25% was actually the hypothetical return of a similarly named model in another newsletter controlled by Mr. Grimaldi). The SEC’s order describes numerous similarly misleading claims allegedly made by NMM and Mr. Grimaldi through the newsletters, the firm’s website and Mr. Grimaldi’s Twitter account.
Pursuant to a settlement with the SEC, NMM and Mr. Grimaldi agreed to establish internal procedures and controls reasonably designed to ensure the accuracy of future performance representations and retain an independent consultant to perform annual reviews of such procedures and controls for a period of three years. NMM also agreed to post the SEC’s order on its website and mail or e-mail an updated Form ADV, including disclosure of the order, to existing advisory clients. In addition, Mr. Grimaldi agreed to pay a $100,000 fine.