An investment adviser seeking
to show how a particular investment strategy would have performed
during specified time periods would be well advised to:
-
use only historical performance data
and not a mix of historical data and hypothetical assumptions
and
-
reflect all aspects of the investment
strategy and not omit the impact of any key aspect of the
strategy.
These are the lessons of
Lucia v. SEC, an August opinion of the D.C. Circuit Court
of Appeals upholding an SEC decision that an adviser violated the
anti-fraud provisions of Section 206 of the Investment Advisers Act
and the SEC's advertising Rule 206(4)-1(a)(5) thereunder.
The case, which involved an
adviser's free seminars on retirement planning, clarifies what
is required for so-called "backtesting" illustrations.
The adviser purported to show prospective clients that the
adviser's investment strategy was superior to others in
allowing retirees to live comfortably off their investment
