The Global Investment Performance Standards (GIPS) attempts to be a set of standardized, industry-wide principles that guide investment firms on how to calculate and present their investment results to prospective clients. An SEC-registered investment adviser touting that it is GIPS Compliant in advertising, moves GIPS from an accounting concern to a regulatory concern.
ZPR Investment Management made that mistake. The firm and its principal were hammered with penalties for the violations. Zavanelli is barred from the industry and must pay a $660,000 fine for its advertising that falsely claimed GIPS compliance.
It’s a big penalty for an advertising failure.
It was interesting to see that Zavanelli used some international operations and tried, unsuccessfully, to keep those separate from the US operations. The reason, according to an email found during the SEC investigation was to keep the communication away from the “prying eyes of the SEC Monster.” In the decision, the Administrative Law Judge details the combative nature of Mr. Zavanelli during the hearing. That lead the ALJ to the finding that he acted willfully and with scienter.
Sources:
- SEC ALJ bars and fines former CCO for improper claims of GIPS compliance in IA Watch (subscription required)
- Initial Decision in the Matter of ZPR Investment Management and Max Zavanelli (.pdf)