SEC Announces Date for Next CCOutreach Program
1.17.2006 The SEC announced that its annual
CCOutreach Program National Seminar for mutual fund and investment
adviser Chief Compliance Officers will be held on November 14, 2006. The program will be held at
the SEC's Washington, D.C., headquarters. The stated goal of the CCOutreach
program is to enhance compliance by improving communication and
coordination with CCOs.
The CCOutreach National Seminar
in 2006 will include panel discussions with SEC staff and CCO
representatives on the latest compliance developments relevant to
CCOs. The National Seminar will again follow a series of regional
seminars held by Commission examination staff and will address
questions and issues raised at those programs.
Please click http://www.sec.gov/info/ccoutreach.htm for details about the CCOutreach Program Seminars, including the
dates and locations of the regional seminars.
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SEC Names Wyderko as the Acting Director
of the SEC's Division of Investment Management
1.12.2006 The SEC named Susan Ferris Wyderko as the Acting Director
of the SEC's Division of Investment Management, which oversees
mutual funds and investment advisers.
Ms. Wyderko has served as the Director
of the Office of Investor Education and Assistance since March 2000.
In that position she is principally responsible for the Commission's
outreach to individual investors, ensuring that their problems and
concerns are known throughout the Commission and considered when the
agency takes action.
She is a 20-year veteran of the SEC. She has held several senior positions within the agency,
including Director of the Office of Legislative Affairs and Acting
Director of Public Affairs. She previously served as a Counsel to
Chairman Arthur Levitt and as an Assistant General Counsel at the
SEC with responsibility for filing briefs with the
Courts of Appeals and the Supreme Court. From 1993 to 1995 she was an
Assistant Chief Litigation Counsel for the Division of Enforcement at
the SEC.
Please click ** for the press release announcing the appointment.
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SEC Brings Fraud Charge Against Connecticut Adviser
1.5.2006 The SEC obtained a default judgment
permanently enjoining David M. Faubert and his investment
advisory firm, Faubert Financial Group (FFG), from violating the
antifraud provisions of the securities laws. In
addition, Faubert and FFG were ordered to pay over $7.5 million in
disgorgement and penalties. In its Complaint, the SEC alleged
that from 2000 to the present, Faubert defrauded as many as 15 clients
by telling them he would invest their money in a "fixed account" which
"guaranteed" an 8% return. In many instances Faubert persuaded the
clients to transfer their money from legitimate investments such as
mutual funds or variable annuities into an investment in his "fixed
account" with its "guaranteed" return. However, instead of investing
the clients' funds as promised, Faubert diverted the funds for his
personal use, including the payment of his gambling debts. The
Complaint further alleged that, to conceal the fraud, Faubert
periodically provided the clients with account statements that he had
fabricated. Finally, the Complaint stated that Faubert defrauded the
clients of approximately $2.4 million.
Please click http://www.sec.gov/litigation/litreleases/lr19508.htm for a copy of the administrative action.
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Employees of Mutual Fund Transfer Agent Charged with Fraud
1.1.2006 The SEC broght charges against six former officers of Putnam
Fiduciary Trust Company (PFTC), a Boston-based registered transfer
agent, for engaging in a fraudelent scheme. The SEC alleges that beginning in January 2001, the officers defrauded a defined contribution plan client and group of
Putnam mutual funds of approximately $4 million.
The SEC's complaint alleges that the officers' misconduct arose out of PFTC's one-day
delay in investing certain assets of a defined contribution client,
Cardinal Health, Inc., in January 2001. The markets rose steeply on
the missed day, causing Cardinal Health's defined contribution plan to
miss out on nearly $4 million of market gains. According to the
complaint, rather than inform Cardinal Health of the one-day delay or
compensate their client for the missed trading gain, the defendants
decided to improperly shift approximately $3 million of the costs of
the delay to shareholders of certain Putnam mutual funds through
deception, illegal trade reversals, and accounting machinations.
The SEC's complaint further alleges that the officers improperly allowed Cardinal
Health's defined contribution plan to bear approximately $1 million of
the loss without disclosing to Cardinal Heath that they had done so and took steps to cover-up the wrongful conduct. As a result, the
conduct was not discovered until January 2004.
Significantly, the SEC announced that it would not bring any
enforcement action against PFTC because of its swift, extensive and
extraordinary cooperation in the SEC's investigation of the
transactions that are the subject of the SEC's complaint.
PFTC's cooperation consisted of:
- prompt self-reporting,
- an independent internal investigation,
- sharing the results of that investigation with the government (including not asserting any applicable privileges and protections with respect to written materials furnished to the
Commission staff),
- terminating and otherwise disciplining responsible wrongdoers,
- providing full restitution to its defrauded clients,
- paying for the attorneys' and consultants' fees of its defrauded
clients, and
- implementing new controls designed to prevent the
recurrence of fraudulent conduct.
Please click http://www.sec.gov/litigation/litreleases/lr19496.htm for a copy of the administrative order.
Similar cases were brought against two other former Prudential registered representatives.
Please click http://www.sec.gov/litigation/admin/34-52964.pdf and http://www.sec.gov/litigation/admin/34-52962.pdf for copies of the administrative orders.
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Independent
Directors Council and ICI Issues Board Governance Practices Survey
1.15.2005 The Independent
Directors Council and Investment Company Institute (ICI) released a summary of the mutual fund board governance
practices surveys over the last ten years. The survy is called "Overview of Fund Governance
Practices 1994 - 2004 (2006)."
The survey focuses on a number of mutual fund board structures and practices common
across the industry. It shows trends over the past 10 years and unique events or factors that may have in uenced a particular practice during the period. Information is also presented on fund assets managed by complexes that participated in each of the biennial studies, the average
fund assets served per director, the average number of funds served, and selected independent director
characteristics.
Please click http://www.idc1.org/getPublicPDF.do?file=fund_gov_practices to access a copy of the report.
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SEC Issues Standards on When It Imposes Civil Penalties
1.4.2005 The SEC issued a statement on how it decides when , and if so to what extent, to impose civil penalties on firms.
In 1990, Congress passed the Securities Enforcement Remedies and Penny Stock Reform Act (the �Remedies Act�), which gave the SEC authority generally to seek civil money penalties in enforcement cases. The penalty provisions added by the Remedies Act expressly authorize the SEC to obtain money penalties from entities, including corporate issuers. These provisions also enhanced the SEC's authority to fine individuals.
The SEC stated that a key question is whether the firm�s violation has provided an improper benefit to the shareholders, or conversely whether the violation has resulted in harm to the shareholders. Where shareholders have been victimized by the violative conduct, or by the resulting negative effect on the entity following its discovery, the SEC is expected to seek penalties from culpable individual offenders acting for a firm.
The need for effective deterrence is another factor. The SEC cited the legislative history of the Remidies Act which also listed fraudulent intent, harm to innocent third parties, and the possibility of unjust enrichment to the wrongdoer as factors as to whether to impose a penalty.
Please click http://www.sec.gov/news/press/2006-4.htm to access a copy of the release.
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SEC Proposes Rule Allowing the Delivery of Proxy Materials via the Internet
12.8.2005 The SEC proposed amendments to the proxy rules under the Securities Exchange Act of 1934 that would provide an alternative method for issuers and other persons to furnish proxy materials to shareholders by posting them on an Internet Web
site and providing shareholders with notice of the availability of the proxy materials.
Copies would be available to shareholders on request, at no cost.
Under the proposals, an issuer would be able to satisfy its obligations
under the SEC�s proxy rules by posting its proxy materials on a specified,
publicly-accessible Internet Web site (other than the Commission�s EDGAR Web site)
and providing shareholders with a notice informing them that the materials are available and explaining how to access those materials.
Shareholders and other persons conducting their own proxy solicitations would be
able to rely on the proposed amendments under requirements substantially similar to the
requirements that would apply to issuers. As a result, these proposals also would give
these shareholders and other persons an alternative method to furnish proxy materials that
may have the effect of reducing the cost of engaging in a proxy contest.
The proposed amendments would require an issuer that is relying on the proposed
�notice and access� model to provide a shareholder with a copy of the materials upon
request (in paper or by e-mail, as requested). A soliciting person other than the issuer
may choose not to provide a copy of its proxy materials to a requesting shareholder if the person is conducting a conditional �electronic only� proxy solicitation and soliciting
proxy authority only from shareholders willing to electronically access the soliciting
person�s proxy materials.
Please click http://www.sec.gov/rules/proposed/34-52926.pdf to access a copy of the proposing release.
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Adviser Charged with Cherry-Picking
12.2.2005 The SEC charged Gerson Asset Management, Inc. (GAM), a registered
investment adviser, and Seth Gerson, its sole owner, officer,
and employee, with �cherry picking� or the unfair allocation of trades.
Gerson operates GAM out of his home in Mount Kisco, New York.
The SEC order finds that from the time GAM commenced operations in
May 2000 through February 2004, Gerson unfairly allocated
profitable trades to his own accounts and allocated
unprofitable trades to the accounts of his advisory clients.
He did this by purchasing securities in an omnibus account and
delaying allocation of the purchases until later in the day,
after he saw whether the securities appreciated in value.
With respect to some clients, Gerson sold securities that had
appreciated and allocated the purchase and the realized day-
trading profit to his own account. With respect to a second
group of clients, Gerson sold securities that had appreciated,
allocated the day-trade and profit to his own account, and
then purchased the same security at the increased price for
the client�s account. As a result of this conduct, Gerson
realized ill-gotten gains of at least $200,000, and injured
his clients by at least $150,000.
The SEC order finds that Gerson
failed to create or maintain required records of client
trades, and that GAM�s Form ADV misrepresented that, in order
to protect against conflicts of interests, written records
would be maintained concerning trading by GAM�s employees and
related person in securities recommended to GAM clients.
Please click http://www.sec.gov/litigation/admin/34-52880.pdf to access a copy of the administrative action.
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SEC Brings Improper Performance Fee Case Against Adviser
12.1.2005 The SEC settled enforcement
proceedings against RENN Capital Group, Inc. (RENN Capital), a
registered investment adviser based in Dallas, Texas. The
Commission�s Order found that RENN Capital willfully violated
the performance-based-fee and proxy-solicitation provisions of
the federal securities laws and that it filed misleading
reports with the Commission. Between January 1996 and
December 2003, RENN Capital received excessive advisory fees
by improperly including unrealized capital appreciation in the
formula it used to charge performance-based fees to the
Renaissance Capital Growth & Income Fund III, Inc. (RenIII), a
registered business development company. RENN Capital also
failed to file a preliminary proxy statement in connection
with an amendment to the advisory contract with RenIII and
filed reports with the Commission on behalf of RenIII that
omitted material facts concerning the use of unrealized
capital appreciation in the calculation of the performance-
based fees that would have prevented statements in the reports
from being misleading.
Please click http://www.sec.gov/litigation/admin/ia-2454.pdf to access a copy of the administrative action.
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Hedge Fund Adviser Charged with Using Fraudelent PPMs
12.1.2005 The SEC charged Maxwell Investments, LLC, a registered investment
adviser, and Gary J. Maxwell, and Bart D. Coon, principals of
Maxwell Investments, with violating the antifraud,
adviser reporting and adviser recordkeeping provisions of the
federal securities laws. The SEC found that during 2003
Maxwell Investments, Gary Maxwell and Coon offered and sold
interests in several hedge funds operated by the firm through
private placement memoranda which misrepresented Maxwell
Investments� fee structure and made other material
misrepresentations. It further found that during 2003,
Maxwell Investments collected $839,798 in excess fees and
transferred assets between funds at various times without
disclosing these practices to investors. Further, the firm
failed to maintain proper books and records.
Please click http://www.sec.gov/litigation/admin/33-8640.pdf to access a copy of the administrative action.
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ETF Shares Required to be Reported by Access Persons
12.1.2005 The SEC in a no-action letter took the position that access persons of investment advisers must report their holdings of, and trades in, shares of exchange-traded funds (ETFs) that are organized as unit investment trusts (UITs). Most ETFs are organized as open-end investment companies and, as a result, are excluded from the definition of Reportable Securities under Rule 204A-1 under the Investment Advisers Act. However, many ETFs are organized as UITs, including SPDRs, MidCap SPDRs, Nasdaq-100 Shares, and DIAMONDS and their shares are subject to the reporting requirements.
In the no-action letter, the SEC staff recommended that investment advisers consider treating open-end ETF shares as Reportable Securities and that persons subject to the similar reporting requirements of Rule 17j-1 under the Investment Company Act of 1940 consider treating open-end ETF shares as "covered securities" when complying with the requirements of that rule. The staff recommendation, if followed, will require investment companies and investment advisers to revise their codes of ethics to require access persons to report ETF holdings and trades.
Please click http://www.sec.gov/divisions/investment/noaction/ncs113005.htm to access the no-action letter.
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