A pair of brokerage firms have barred advisers from putting
new money into five mutual funds sold by Virtus Investment Partners Inc.,
as ripples spread from the regulatory probe into money manager F-Squared
Investments Inc. With the Securities and Exchange Commission signaling it is
moving closer to bringing civil charges against F-Squared, Raymond James
Financial Inc. and Stifel Financial Corp. have prohibited financial
advisers from opening new accounts or placing additional client money into the
Virtus line of AlphaSector mutual funds jointly run with F-Squared.
These funds have been big sellers for Virtus, including the
$7.9 billion Virtus Premium AlphaSector fund. The Virtus AlphaSector funds are
all co-managed by F-Squared's chief executive officer, Howard Present.
Late last month, F-Squared said in a filing that the
SEC issued a so-called Wells notice to the firm and its CEO, Mr. Present,
over a matter of whether the firm properly advertised past returns for 2001
through 2008. The Wells notice means the SEC is considering a bringing civil
case, but isn't a formal allegation of wrongdoing.
About 20%, or $13 billion, of Virtus' assets are in
F-Squared funds, according to Surinder Thind, an analyst at Jefferies. During
the first six months of 2014, the two largest F-Squared-managed Virtus funds
took in about $885 million of the firm's total $1 billion in retail new
investments, according a recent research report from Jefferies' Mr. Thind.
A Raymond James internal note available to its financial
advisers dated Sept. 5 outlined the firm's decision to "restrict all
purchases" of Virtus AlphaSector mutual funds, meaning that no new money
could be added to existing funds and no new accounts could be established,
according to people familiar with the matter. A spokeswoman from Raymond James
declined comment.
Since F-Squared's Wells notice surfaced, Stifel also moved
to prohibit new money from going into the Virtus mutual funds, people familiar
with the matter said. Virtus' shares have fallen 17.5% this month, on pace for
their worst monthly showing since June 2013. Shares were down 0.8%, or $1.50,
to $184.50 Wednesday afternoon.
Earlier this month, The Wall Street Journal reported that
several brokerage firms that do business directly with F-Squared, including
Raymond James, had either cautioned on or limited the amount of new direct
investments with F-Squared.
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