The following matter was settled without admitting or denying any wrong doing. To insure the highest standard of compliance the Advisor has retained SEC3 Compliance Consultants, LLC.
Washington D.C., Jan. 30, 2014 - The Securities and Exchange Commission
today charged a New York-based money manager and his firm with making false
claims through Twitter, newsletters, and other communications about the
success of their investment advice and a mutual fund they manage. An SEC
order against Mark A. Grimaldi and Navigator Money Management (NMM) finds
that they selectively touted the past performance of the Sector Rotation
Fund (NAVFX) and specific securities recommendations they made to clients.
They cherry-picked highlights but ignored less favorable recommendations and
other data that would have made the facts complete.Grimaldi and NMM agreed
to settle the SEC’s charges.“The securities laws require investment advisers
to be honest and fully forthcoming in their advertising to give investors
the full picture,” said Sanjay Wadhwa, senior associate director for
enforcement in the SEC’s New York Regional Office. “Grimaldi and his firm
are being held accountable for 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.” According to the SEC’s
order, Grimaldi is majority owner, president, and chief compliance officer
at NMM, which is based in Wappingers Falls, N.Y. Grimaldi particularly used
a newsletter called The Money Navigator to solicit clients for NMM and
investors for the Sector Rotation Fund. The Money Navigator had more than
60,000 subscribers. In 2008, the SEC conducted an examination of NMM and a
fund it managed. SEC exam staff notified NMM that the newsletters could be
considered advertisements under Rule 206(4)-1, which generally prohibits
false or misleading advertisements by investment advisers. SEC staff also
noted that the newsletters could be considered advertisements under Rule
482, which governs advertisements for mutual funds and other investment
companies and has specific requirements for ads containing performance data.
The SEC’s order details several misleading advertisements made by NMM and
Grimaldi in newsletters following that SEC examination. For example, they
misleadingly claimed in a December 2011 newsletter that Sector Rotation Fund
was “ranked number 1 out of 375 World Allocation funds tracked by
Morningstar.” However, a time period of Oct. 13, 2010 to Oct. 12, 2011 was
cherry-picked to broadly acclaim that ranking, and Sector Rotation Fund had
a poorer relative performance during other time periods. From Jan. 1 to Nov.
30, 2011, the day before Grimaldi published the ad, at least 100 other
mutual funds in that same Morningstar category outperformed Sector Rotation
Fund. According to the SEC’s order, NMM was advertised as a “five-star
(Morningstar) money manager” in the newsletters as well as on websites and
in e-mail correspondence with potential investors. This claim was materially
misleading because Morningstar rates mutual funds not investment advisers.
And since February 2009, NMM has not been the investment manager of any
mutual fund rated five stars by Morningstar. The SEC’s order finds that
Grimaldi also made misleading statements on Twitter. He claimed
responsibility for model portfolios in his newsletters that “doubled the S&P
500 the last 10 years.” However, Grimaldi made the claim even though he had
no involvement in the model portfolio performance for the first three years.
The SEC’s order finds that NMM violated Sections 17(a) of the Securities Act
of 1933, Sections 206(1), 206(2), and 206(4) of the Investment Advisers Act
of 1940 and Rules 206(4)-1(a)(2), 206(4)-1(a)(5), 206(4)-7, and 206(4)-8 as
well as Section 34(b) of the Investment Company Act of 1940. Grimaldi
violated many of the same provisions and aided and abetted and caused NMM’s
violations. Grimaldi agreed to pay a penalty of $100,000, and he and the
firm agreed to be censured and comply with certain undertakings including
the retention of an independent compliance consultant for three years.
Without admitting or denying the SEC’s findings, NMM and Grimaldi are
required to cease and desist from future violations of these sections of the
securities laws. The SEC’s investigation was conducted by Wendy Tepperman,
Mark Germann, and Alexander Janghorbani of the New York office with
assistance from Nell Spekman, an examiner in the New York office.
Click here to read SEC notice dated January 30, 2014.