•  
• Tweet
•  
•        Print
•  
•         Track Keywords
•  
• 

Matthias Knab, Opalesque:

From K&L Gates: On August 9, 2016, in the first court decision directly interpreting and addressing the use of backtested performance by an investment adviser, the United States Court of Appeals for the District of Columbia Circuit declined a petition for review of the decision of Securities and Exchange Commission in In the Matter of Raymond J. Lucia Companies, Inc. and Raymond J. Lucia, Sr. In denying the petition for review, the court left standing the SEC’s imposition of sanctions for violations of the Investment Advisers Act of 1940, as amended, and Rule 206(4)-1(a)(5) thereunder, which prohibit the publication or distribution of any advertisement that contains any untrue statement of material fact or that is otherwise false or misleading.

Key takeaways:

• The SEC Has Expanded Its Views on the Use of Backtested Performance. The court affirmed the SEC’s now-public view, which was initially set forth in its decision on this matter, that the term "backtested" will be understood to mean that performance is calculated based on actual historical data rather than hypothetical assumptions (even reasonable assumptions that do not result in misleading performance numbers).

• The Backtest Should Match the Strategy. Any backtested performance should be calculated in a manner fully consistent with the investment strategy that the backtested data is used to advertise.

• Disclaimers May Not Cure Otherwise Misleading......................

  To view our full article Click here