The Securities and Exchange Commission (SEC) announced on Thursday, January 30, that it charged a New York-based money manager and his firm with making false claims through Twitter, email newsletters, and other communications about the success of their investment advice and a mutual fund they manage.
Mark A. Grimaldi agreed to pay a penalty of $100,000, and his firm agreed to be censured and comply with certain undertakings including the retention of an independent compliance consultant for three years.
The SEC’s order states that Grimaldi made misleading statements on Twitter, like claiming responsibility for model portfolios in his newsletters that “doubled the S&P 500 the last 10 years.” Grimaldi made the claim even though he had no involvement in the model portfolio performance for the first three years.
The importance of this case is that it exemplifies to money managers, algorithmic trading programs, signal service providers and brokers that they might be held responsible for claims made on social media. Some EA programmers and copy trading promoters rely on what can only be assumed to be selective tweeting of trade results for self promotion, in the United States at least, that might have consequences.
How Astra’s Decentralized Compliance Layer Fills a Legal Protection GapGo to article >>
Grimaldi was made famous as “the investment guru” of Suze Orman, a popular author, “personal finance expert,” and a frequent speaker on American daytime television shows. In 2011, Ms. Orman distributed about 50,000 free trial subscriptions to Grimaldi’s $63 a year newsletter, and it is likely that the publicity attracted the eye of the regulator looking to make an example of Twitter misuse.
Sanjay Wadhwa, SEC Senior Associate Director, explained in the announcement: “The securities laws require investment advisers to be honest and fully forthcoming in their advertising to give investors the full picture, Grimaldi and his firm are being held accountable for using social media and widely disseminated newsletters to cherry-pick information and make misleading claims about their success in an effort to attract more business.”
According to the SEC’s order, Grimaldi used a newsletter called The Money Navigator, which had more than 65,000 subscribers, to solicit clients for his fund. In 2008, the SEC notified the fund that the newsletters could be considered as advertisements under its rules, which generally prohibits false or misleading advertisements by investment advisers.
The SEC’s order lists several misleading advertisements made by Grimaldi’s newsletters. For example, in December 2011 they claimed that his fund was “Ranked number 1 out of 375 World Allocation funds tracked by Morningstar.” However, the time period of October 13, 2010 to October 12, 2011 was cherry-picked to broadly acclaim that ranking, as the fund had a much poorer relative performance during other time periods.