## Facts

- Alpha Fiduciary, Inc. (AFI) was an SEC-registered investment adviser based in Phoenix, Arizona; Arthur T. Doglione was AFI’s president, majority owner, and control person.
- AFI developed “Global Tactical Multi Asset Class Strategies” (GTMACS) and marketed the strategies to clients and prospective clients.
- From at least August 2010 through March 2013, AFI, Doglione, and a senior business-development employee created and distributed GTMACS performance advertising.
- The advertised GTMACS performance was derived from back-tested, static models dating to 1999 and constructed using indices selected to minimize volatility and maximize returns, before AFI or GTMACS existed.
- Some marketing materials referenced “hypothetical performance,” but disclosures were imprecise, not consistently placed with the performance data, and were contradicted by other statements implying the returns were actual.
- Other performance advertising was distributed without any disclosure identifying the performance as hypothetical.
- AFI’s advertising also included selective examples of favorable investment decisions and non-representative client performance information, without a balanced presentation including unprofitable results.

## Issues

1. Whether Respondents violated Advisers Act § 206(1) and § 206(2) by distributing performance advertisements that failed to clearly and prominently disclose that GTMACS returns were hypothetical, back-tested results rather than actual performance.
2. Whether Respondents violated Advisers Act § 206(4) and Rule 206(4)-1 by presenting cherry-picked “past specific recommendations” and non-representative client performance in a manner that was materially misleading.

## Decision

- The SEC instituted administrative cease-and-desist proceedings under Advisers Act §§ 203(e), 203(f), and 203(k).
- The matter was resolved by settlement; Respondents consented to the order without admitting or denying the findings (except jurisdiction).
- The SEC found that AFI and Doglione violated Advisers Act § 206’s antifraud provisions in connection with GTMACS advertising.
- The SEC ordered a cease-and-desist from future violations and imposed remedial sanctions, including censure and civil monetary penalties, along with compliance-related undertakings.

## Legal Principles

- Advisers Act § 206(1) prohibits employing a device, scheme, or artifice to defraud clients or prospective clients; § 206(2) prohibits practices that operate as a fraud or deceit.
- Under § 206(4) and Rule 206(4)-1, investment adviser advertisements must not be false or misleading, including by omission of material facts needed to make statements not misleading.
- Hypothetical or back-tested performance creates a heightened risk of deception and may not be presented in a way that implies it reflects actual client results.
- Disclosures that performance is hypothetical must be clear, prominent, proximate to the performance presentation, and not contradicted by other statements in the same materials.
- Selectively presenting profitable “past specific recommendations” or non-representative client performance, without a fair and balanced presentation that includes losses or full context, can constitute misleading advertising and fraud or deceit.

## Conclusion

The SEC concluded that AFI and its control person violated the Advisers Act’s antifraud and advertising provisions by marketing back-tested GTMACS results without sufficiently clear, prominent, and consistent disclosure that the performance was hypothetical, and by presenting selective favorable examples and non-representative performance information that created a misleading impression of real-world results.


In re Alpha Fiduciary, Inc., Investment Advisers Act Release No. 4283 (SEC 2015)