The SEC charged Raymond J. Lucia Companies, Inc. (RJL) and Raymond J. Lucia, Sr. for presenting materially misleading information at a series of investment seminars RJL and Lucia hosted for potential clients.
The SEC found that Lucia, a registered investment adviser representative, used the investment seminars to promote his proprietary wealth management strategy called “Buckets of Money.” A recurring theme of the seminars was that following the Buckets of Money strategy would allow one to retire comfortably, and generate inflation-adjusted income for life. To prove this, Lucia claimed to have empirically backtested the strategy over actual bear market periods. Lucia and RJL presented a slideshow at the seminars which indicated that, according to their backtesting, the Buckets of Money strategy would have provided a person retiring at the onset of one of those bear markets with inflation-adjusted income throughout their retirement, in contrast to other strategies which would have left an investor penniless within a matter of years.
The SEC further alleges that the slideshow presentation Lucia and RJL used during their seminars was materially misleading in three ways:
- although they disclosed that their backtests had used a hypothetical inflation rate, they failed to disclose that had they used the actual inflation rate for those periods, the retirees using their investment strategy would have run through their savings years before the end of the bear markets;
- Lucia and RJL failed to account for the negative effect that the deduction of advisory fees would have had on the backtesting of their investment strategy.
- Lucia and RJL failed to conduct their backtests in a manner that was consistent with the strategy, which would have had a significantly negative effect on the backtest results.
The SEC also found that Lucia and RJL also failed to maintain adequate records of the backtesting as they were required to do. The only documentation of their backtesting calculations consisted of two two-page spreadsheets which failed to duplicate the advertised investment strategy.
Click here to access the administrative action.