Prospera Financial Services, Inc.

Allegations: WITHOUT ADMITTING OR DENYING THE FINDINGS, THE FIRM CONSENTED TO THE SANCTIONS AND TO THE ENTRY OF FINDINGS THAT IT FAILED TO TRANSMIT 32,636 REPORTABLE EVENTS (ROES) TO THE ORDER AUDIT TRAIL SYSTEM (OATS) ON 140 BUSINESS DAYS. THE FINDINGS STATED THAT THE FIRM'S SUPERVISORY SYSTEM DID NOT PROVIDE FOR THE SUPERVISION REASONABLY DESIGNED TO ACHIEVE COMPLIANCE WITH RESPECT TO THE APPLICABLE SECURITIES LAWS AND REGULATIONS AND THE RULES OF FINRA. THE FIRM'S WRITTEN SUPERVISORY PROCEDURES (WSPS) FAILED TO PROVIDE FOR THE MINIMUM REQUIREMENTS FOR ADEQUATE WSPS FOR OATS. Status: Final Sanction Detail: THE FIRM WAS CENSURED, FINED $12,500 AND UNDERTAKES TO REVISE ITS WRITTEN SUPERVISORY PROCEDURES. Summary: THIS INCIDENCE OCCURRED WHEN THE FIRM ENTERED INTO A SECONDARY CLEARING AGREEMENT AND DID NOT TIMELY NOTIFY THE FIRST CLEARING FIRM TO CHANGE ITS EXEMPT OATS REPORTING STATUS OVER TO BEING A REPORTING MEMBER. THE EVENTS WERE REPORTED, BUT UNDER THE CLEARING FIRM'S IDENTIFIER RATHER THAN THE FIRM'S.

Allegations: IA RELEASE 40-4498 / AUGUST 25, 2016: THE SECURITIES AND EXCHANGE COMMISSION ("COMMISSION") DEEMS IT APPROPRIATE THAT CEASE-AND-DESIST PROCEEDINGS BE, AND HEREBY ARE, INSTITUTED PURSUANT TO SECTION 203(K) OF THE INVESTMENT ADVISERS ACT OF 1940 ("ADVISERS ACT") AGAINST RESPONDENT ("RESPONDENT"). ON THE BASIS OF THIS ORDER AND RESPONDENT'S OFFER, THE COMMISSION FINDS THAT THIS MATTER ARISES FROM MISSTATEMENTS MADE BY THE RESPONDENT, A REGISTERED INVESTMENT ADVISER, TO CERTAIN OF ITS ADVISORY CLIENTS, INCLUDING CLIENTS' SEPARATELY MANAGED ACCOUNTS INVESTED IN A STRATEGY OFFERED BY F-SQUARED INVESTMENTS, INC. ("F-SQUARED"). THE RESPONDENT ADVERTISED THE STRATEGY BY NEGLIGENTLY RELYING ON F-SQUARED'S MATERIALLY INFLATED, AND HYPOTHETICAL AND BACK-TESTED, PERFORMANCE TRACK RECORD THAT F-SQUARED MISREPRESENTED. ALPHASECTOR IS A SECTOR ROTATION STRATEGY BASED ON AN ALGORITHM THAT YIELDS A SIGNAL INDICATING WHETHER TO BUY OR SELL EXCHANGE-TRADED FUNDS ("ETFS"). ONE OF THESE ALPHASECTOR STRATEGIES WAS CALLED ALPHASECTOR PREMIUM, WHICH CONSISTED OF NINE INDUSTRY ETFS THAT TOGETHER MADE UP THE INDUSTRIES IN THE S&P 500 INDEX. FROM APRIL 2012 THROUGH THE PRESENT, THE RESPONDENT HAS OFFERED THE ALPHASECTOR STRATEGY TO ITS CLIENTS. FROM SEPTEMBER 2011 TO OCTOBER 1, 2013, IN RELIANCE ON F-SQUARED'S FALSE STATEMENTS, RESPONDENT'S ALPHASECTOR ADVERTISEMENTS FALSELY STATED THAT: (A) ASSETS HAD BEEN INVESTED IN THE ALPHASECTOR STRATEGY FROM APRIL 2001 TO SEPTEMBER 2008; AND (B) THE TRACK RECORD HAD SIGNIFICANTLY OUTPERFORMED THE S&P INDEX FROM APRIL 2001 TO SEPTEMEBER 2008. IN FACT, NO CLIENT ASSETS HAD TRACKED THE STRATEGY FROM APRIL 2001 THROUGH 2008. IN ADDITION, F-SQUARED MISCALCULATED THE HISTORICAL PERFORMANCE OF ALPHASECTOR FROM APRIL 2001 TO SEPTEMBER 2008 BY INCORRECTLY IMPLEMENTING SIGNALS IN ADVANCE WHEN SUCH SIGNALS ACTUALLY COULD HAVE OCCURRED. RESPONDENT TOOK INSUFFICIENT STEPS TO CONFIRM THE ACCURACY OF F-SQUARED'S HISTORICAL DATA AND OTHER INFORMATION CONTAINED IN THE MATERIALS. IN ADDITION, RESPONDENT DID NOT OBTAIN SUFFICIENT DOCUMENTATION THAT SUBSTANTIATED F-SQUARED'S ADVERTISING CLAIMS IN THE MATERIALS. AS A RESULT OF THIS INACCURATE COMPILATION OF HISTORICAL DATA BY F-SQUARED, RESPONDENT ADVERTISED THE ALPHASECTOR STRATEGY BY USING HYPOTHETICAL AND BACK-TESTED HISTORICAL PERFORMANCE THAT WAS INFLATED SUBSTANTIALLY OVER WHAT PERFORMANCE WOULD HAVE BEEN IF F-SQUARED HAD APPLIED THE SIGNALS ACCURATELY. AS A RESULT, THE RESPONDENT VIOLATED SECTION 206(4) OF THE ADVISERS ACT AND RULE 206(4)-1(A)(5) THEREUNDER. THE RESPONDENT LIKEWISE VIOLATED SECTION 204(A) OF THE ADVISERS ACT AND RULE 204-2(A)(16) THEREUNDER. Status: Final Sanction Detail: IN ANTICIPATION OF THE INSTITUTION OF THESE PROCEEDINGS, RESPONDENT HAS SUBMITTED AN OFFER OF SETTLEMENT (THE "OFFER") WHICH THE COMMISSION HAS DETERMINED TO ACCEPT. SOLELY FOR THE PURPOSE OF THESE PROCEEDINGS AND ANY OTHER PROCEEDINGS BROUGHT BY OR ON BEHALF OF THE COMMISSION, OR TO WHICH THE COMMISSION IS A PARTY, AND WITHOUT ADMITTING OR DENYING THE FINDINGS HEREIN, EXCEPT AS TO THE COMMISSION'S JURISDICTION OVER RESPONDENT AND THE SUBJECT MATTER OF THESE PROCEEDINGS, WHICH ARE ADMITTED, RESPONDENT CONSENTS TO THE ENTRY OF THIS ORDER INSTITUTING CEASE-AND-DESIST PROCEEDINGS PURSUANT TO SECTION 203(K) OF THE INVESTMENT ADVISERS ACT OF 1940, MAKING FINDINGS, AND IMPOSING A CEASE-AND-DESIST ORDER. IN VIEW OF THE FOREGOING, THE COMMISSION DEEMS IT APPROPRIATE TO IMPOSE THE SANCTIONS AGREED TO IN RESPONDENT'S OFFER. ACCORDINGLY, IT IS HEREBY ORDERED THAT: PURSUANT TO SECTION 203(K) OF THE ADVISERS ACT, RESPONDENT SHALL CEASE AND DESIST FROM COMMITTING OR CAUSING ANY VIOLATIONS AND ANY FUTURE VIOLATIONS OF SECTIONS 204(A) AND 206(4) OF THE ADVISERS ACT AND RULES 204-2(A)(16) AND 206(4)-1(A)(5) THEREUNDER. RESPONDENT SHALL, WITHIN 10 DAYS OF THE ENTRY OF THIS ORDER, PAY A CIVIL MONEY PENALTY OF $100,000 TO THE SECURITIES EXCHANGE COMMISSION FOR TRANSFER TO THE GENERAL FUND OF THE UNITED STATES TREASURY. Summary: RESPONDENT'S OFFER OF SETTLEMENT TO THE COMMISSION WAS DATED JUNE 13, 2016 AND AMENDED ON AUGUST 16, 2016. THE FINE WAS PAID IN FULL BY CHECK DATED AUGUST 30, 2016.