The Securities and Exchange Commission charged Mark A. Grimaldi and his firm, Navigator Money Management, with making false claims through Twitter, newsletters, and other communications about the success of their investment advice and a mutual fund they manage. Grimaldi and Navigator were 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.
The Investment Advisers Act’s main thrust is to not be fraudulent, deceptive or misleading. When it comes to the restrictions on advertising, the rules can get complicated.
Grimaldi co-founded The Money Navigator and it had more than 60,000 subscribers by the end of 2011. He used it in part to promote the performance of his various investment financial advise platforms. He stretched the truth and the SEC caught him.
Based on the order, the SEC came in for a exam and poured through the publication looking for advertising rule violations and found some.
Mark Grimaldi manages Sector Rotation (NAVFX),” which “was ranked number 1 out of 375 World Allocation funds tracked by Morningstar. Sector Rotation produced an average annual return of 10.25% from August 31, 2002, to October 31, 2011, vs. 5.47% for the S&P 500 Index, according to Morningstar.”
The ranked #1 and nearly doubling the S&P index must stand out as problematic. The #1 ranking was from October 2010 to October 2011. It was ranked lower before that time frame. I read the copy as saying it was #1 from 2002 to 2011.
It’s tough to claim a 10.25% return from 2002 to 2009 when the fund did not exist prior to December 2009. The return is based on a hypothetical return published in The Money Navigator, not actually put to work. Plus, Grimaldi did not work at The Money Navigator until 2004.
That kind of stretching the truth is even more problematic when you edit the statements down to the 140 characters used in Twitter:
the April issue of the Money Navigator will give you an inside look of how I doubled the S&P500 the last 10 years w/o using low cost funds”
“[m]y cap app model has DOUBLED the S&P 500 the last 10 years.”
You can add on two more failure. If you state a specific recommendation you need to disclose all of the recommendations within the past year. When showing past performance you need disclaimer that it should not be assumed that recommendations made in the future will be profitable or will equal the performance of the securities in this list under Rule 206(4)-1(a)(2)
You should read the order as way to test your knowledge of the advertising rules. I bet that Mr. Grimaldi also understands them better now.