Advisor Sanctioned Based on False Advertising, Testimonial Claims

Respondent Kirkland is an investment adviser who founded Universal Financial Independence, Inc., a firm created to sell books and subscriptions. She was joined in marketing the trading system by Respondents Duane Davis, the founder of Investment Software Systems, Inc. and a managing member of Gold Key Investing LLC, and Stephen Schmidt, the founder of TradeWins Publishing Corp. Each individual and entity was named as a Respondent.

Ms. Kirkland is the creator of a trading system built on two competing indicators linked to the price movement of certain NYSE stocks. The adviser typically directed the purchase of options on modestly priced shares listed on the exchange if the Price Percentage Oscillator and Average Directional Movement Index simultaneously changed directions. The former generally decreased when the share price declined while the latter usually increased under those circumstances. The coordinated movement of the indicators supposedly signed a time-limited “squeeze” regarding the underlying stock’s price movement. That indicated an opportunity to purchase either call or put options on the stock.

Messrs. Schmidt and Davis entered into marketing arrangements through their respective firms with Ms. Kirkland. Under the arrangements Ms. Kirkland would serve as the investment adviser while Messrs. Davis and Schmidt would, respectively, manage the trade signal services and provide the platform through which subscriptions were sold.

Marketing materials highlighted the profitability of Ms. Kirkland’s strategies. Marketing brochures, for example, claimed a “win-rate” of 83% for the strategy yielding annual returns of 910%. While the manner in which the rates were determined was not clearly defined, it implied that they were based on actual transactions. Investors were also led to believe that Ms. Kirkland used the system which could, for a fee, be sent directly to a broker for execution. Effusive testimonials from clients reconfirmed the validity of the approach. Millions of dollars poured into brokerage accounts over a four-year period, beginning in 2015, from investors looking to replicate the claim that $6,000 could become almost $2 million in a few months with the system.

In fact, the results cited were not based on actual trades. Investors complained to Respondents as they used the system but could not replicate the claimed results. The marketing continued nevertheless. The Order alleges violations of Exchange Act Section 10(b) and Advisers Act Sections 206(1) and 206(2).

To resolve the matter Ms. Kirkland consented to the entry of a cease and desist order based on the sections cited in the Order while each other Respondent consented to the entry of an order based only of the Exchange Act section. Ms. Kirkland is also barred from the securities business. Each Respondent will also pay a penalty of $40,000.