The Securities and Exchange Commission today announced that F-Squared Investments agreed to pay $35 million and admit wrongdoing regarding falsifying performance numbers in advertising and marketing materials for its flagship AlphaSector Premium Index strategy.

In addition, the agency charged F-Squared’s co-founder and ex-CEO, Howard Present, with making false and misleading statements to investors regarding the strategy, which has underpinned exchange-traded fund-based separately managed accounts used by many financial advisors.

F-Squared, a Wellesley, Mass.-based registered investment advisor, built a sizable book of business through its quantitative, algorithm-based AlphaSector Premium Index that builds an index portfolio comprised of ETFs tracking nine U.S. equity sectors, as well as a short-term U.S. Treasury ETF as a cash equivalent. The index can invest in any combination of the nine sectors and the Treasury ETF based on buy and sell signals that aim to protect investors from significant down markets while participating in rising markets.

But the SEC alleges that AlphaSector became “the largest active ETF strategy in the market” by falsely advertising a successful track record based on the actual performance of real investments for real clients between the years 2001 and 2008. In reality, the agency says, the algorithm didn’t even exist during that seven-year period.

Furthermore, the SEC says it wasn’t until September 2008 that F-Squared started to receive the algorithm-based buy and sell signals from a third-party data provider that became the AlphaSector Premium Index.

In addition, the data featured in F-Squared’s advertising was actually derived through hypothetical backtesting even though F-Squared and Present specifically advertised the investment strategy as “not backtested.” Meanwhile, the hypothetical data contained a large performance calculation error that boosted the results by roughly 350 percent.

In its complaint against Present filed in federal court in Boston, the SEC said Present was responsible for F-Squared’s advertising materials that appeared on the company website and were sent to clients, as well as for the information about AlphaSector in its SEC filings which he certified as being accurate.

The SEC says Present made the false and misleading statements about AlphaSector from September 2008 to September 2013.

In November, Present left F-Squared and was replaced as CEO by Laura Dagan, who previously was chairman and CEO of Dwight Asset Management Company.

F-Squared will pay a $5 million civil penalty and pony up $30 million in profits to resolve the case. F-Squared said it has also agreed to retain the services of an independent compliance consultant it voluntarily hired at the beginning of 2014 for an additional nine months. Prior published reports said that F-Squared told clients late last year it was being investigated by the SEC.