The SEC has obtained a final judgment and more than $30 million in penalties against Nevada-based Navellier & Associates Inc. and its founder and chief investment officer, Louis Navellier.

The SEC first sued the defendants in U.S. District Court in Massachusetts in August 2017, alleging they breached their fiduciary duties and defrauded their advisory clients and prospective clients through the use of marketing materials that included false and misleading statements regarding the past performance of the firm's Vireo AlphaSector investment strategies.

“Mr. Navellier knew that the Vireo AlphaSector track record could not be validated and, over time, concluded the track record was fabricated and that Vireo AlphaSector was based on a fraud,” the SEC said in its charging document.

“Eventually, he worried that Navellier’s prior false statements about Vireo AlphaSector could get Navellier into legal trouble (including with the commission) so, in the summer of 2013, he arranged to sell the Vireo AlphaSector line of business to F-Squared for approximately $14 million. In this way, he profited from the company’s successful marketing of a fraudulent performance record, without correcting Navellier’s misrepresentations to its fiduciary clients or disclosing the conflicts of interest he and Navellier had in selling Vireo AlphaSector."

Navellier’s advertisements claimed that client assets had been invested in the investment strategies from April 2001 to September 2008 and that the strategies had significantly outperformed the S&P 500 Index from April 2001 to September 2008. “In fact, no client assets had tracked the strategy from April 2001 through September 2008, and even as a back-test the claimed performance was substantially overstated,” the SEC said.

The final judgment orders Navellier to jointly pay disgorgement of $28,964,571, including $6,513,619 in prejudgment interest, as well as civil penalties against Navellier & Associates in the amount of $2,000,000. Mr. Navellier himself was hit with a civil penalty of $500,000.

A phone call to Navellier for comment was answered by a receptionist who said counsel to the firm would call this Financial Advisor Magazine reporter back. No call was received by deadline. 

The court previously granted partial summary judgment in favor of the SEC in February, ruling that Navellier & Associates and Navellier violated the antifraud provisions of the Investment Advisers Act of 1940. The court found that the defendants knew there were misleading statements in their marketing materials and that there had been inadequate due diligence, yet they failed to inform their clients. Instead, the defendants continued to sell the Vireo AlphaSector investment strategies despite their knowledge that representations about the strategies were false and misleading, the court ruled.