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Investments - Strategies

Vireo AlphaSector Investment Strategies Will Make You Rich

June 8, 2020

by Howard Haykin



In 2008, F-Squared Investments promoted an investment strategy – “AlphaSector” – claiming it avoided downturns in the stock market by trading in and out of a series of sector ETFs (Exchange Trading Funds). [Mind you that in 2008 the stock market crashed 34% and Bernie Madoff confessed to his decades-long Ponzi scheme.]
AlphaSector was particularly attractive, with a successful 7-year track record dating back to 2001 - gaining 135% while the S&P 500 Index rose only 28%. Appealing results to investors who were scarred by the 2008 credit crisis. Unfortunately, the strategy never existed during that period and F-Squared fabricated those results. In 2014, F-Squared admitted the fraud and paid a $35 million fine to the SEC.



In 2009, an investment advisory firm, Navellier & Associates (“Navellier”), expressed interest in the investment strategy and signed a licensing agreement with F-Squared to market it under the moniker, “Vireo AlphaSector.” And, in advertisements and client communications, Navellier vigorously referred to the successful 7-year track record – even though Navellier was never able to substantiate that the AlphaSector strategy worked as F-Squared had represented. By May 2011, Louis Navellier, Navellier’s founder and CIO (chief investment officer), recognized that the AlphaSector track record had been fabricated and that Navellier was selling a potential fraud. Yet, Navellier representatives continued to sell the Vireo AlphaSector strategy.


By the summer of 2013, Louis Navellier apparently had enough and sold the Vireo AlphaSector line of business to F-Squared for $14 million. In doing so, Mr. Navellier succeeded in profiting from the company’s successful marketing of a fraudulent performance record, without correcting Navellier’s misrepresentations to its fiduciary clients or disclosing the conflicts-of-interest he and his firm had in selling Vireo AlphaSector. At the time, 6,000 client accounts had $1.4 billion invested in Vireo AlphaSector


For Your Consideration:  Perhaps Mr. Navellier was able to consummate the sale only after extorting F-Squared with the threat that he'd reveal the fraud to the SEC.




INVESTOR TAKE-AWAYS.    While there's no evidence that Navellier clients lost money using this this previously unsubstantiated strategy, it would still be prudent for investors, in general, to simply walk away from investment strategies that wildly exaggerate potential gains and profits – no matter how tempting they may appear. Claims of 135% in gains versus broad market gains of 28% are generally too good to be true.


Investors are further cautioned to stick with investment strategies they understand - which is particularly true for unsophisticated investors who don't employ financial watchdogs to serve as a second set of eyes and ears.



[For further details in this case, click on … SEC 6/4/20 Litigation ReleaseSEC 8/31/17 Litigation Release, and SEC Complaint.]