Massachusetts Financial Services Company, the investment advisory company was charged by the SEC with violations of the Advisers Act by making false statements in promoting “blended” research strategies that offered ideal portfolios containing stocks that were rated a “buy” by both MFS’s fundamental analysts and quantitative models. The ads claimed to show that the blended strategies led to a performance that was superior to using either fundamental or quantitative strategies by themselves. The SEC says that some of the ads were misleading because they failed to disclose that some of the quantitative ratings used to create the hypothetical portfolios used a retroactive, back-tested application of the MFS quantitative model.”Back-tested performance carries the risk that the performance depicted is not due to successful predictive modeling,” the SEC said in its complaint.
MFS advertised the hypothetical returns of its blended strategies to institutional investors, consultants and financial intermediaries including broker-dealers, insurance companies and investment advisors, the SEC said.”MFS also falsely claimed that the hypothetical portfolio was based on MFS’s own quantitative stock ratings dating back to the mid-1990s, even though before 2000 MFS did not have a quantitative research department or generate its own quantitative stock ratings,” the SEC complaint said.
The ads were ended by the company’s compliance department in 2015, the agency said.
MFS issued the following statement in regards to the agreement:
“MFS has entered into a settlement with the U.S. Securities and Exchange Commission regarding misstatements in disclosures in certain marketing materials provided to institutional audiences for its blended research strategies.