July 24, 1989
TO: SEC RULES MEMBERS NO. 33-89
STATE SECURITIES MEMBERS NO. 26-89
INVESTMENT ADVISER MEMBERS NO. 38-89
INVESTMENT ADVISER ASSOCIATE MEMBERS NO. 37-89
RE: RECENT COMMISSION ENFORCEMENT ACTIONS
__________________________________________________________
In a release dated July 17, 1989, the Philadelphia Regional
Office of the Securities and Exchange Commission announced the
filing of a complaint against a fund group, its investment
adviser and transfer agent, and the president and chairman of the
board of both the funds and the adviser.
The complaint alleges various violations of the valuation
and reporting provisions of the Investment Company Act and the
antifraud provisions of the Securities Act, Securities Exchange
Act and Investment Advisers Act. Specifically, the SEC alleges
that the funds failed to register their shares in states
requiring registration. Consequently, the funds incurred
material liabilities (in the form of unpaid registration fees),
which resulted in their reported NAVs being inaccurate, and in
the failure of the funds' prospectuses to disclose the adverse
implications.
The complaint also alleges violations of rules regarding
custody, provision of investment advice without approval of fund
trustees and reports and registration fees.
In a separate action, the SEC has announced the institution
of administrative proceedings and the imposition of remedial
sanctions against an investment adviser to a mutual fund and its
president and sole stockholder. In an action brought by the SEC,
the adviser and its president had been permanently enjoined by a
federal district court from violations of various provisions of
federal securities laws. The SEC complaint in that case alleged
several instances of violative conduct, including (1) redemption
by the president of the adviser of initial shares of the fund
without reimbursement for organizational expenses, in violation
of representations in the fund's prospectus, (2) engaging in
various investment practices in violation of the fund's
investment restrictions, including trading securities on margin,
(3) improper payment of marketing of expenses, and (4) selling
and purchasing shares at an incorrect NAV due to the failure of
the fund to properly accrue operating expenses and reflect the
margin trades.
In the order of settlement, the adviser and its president
were barred from having custody or exercising discretionary
authority over client funds, or for being associated with any
person who engages in such activities, for a period of not less
than four years.
Copies of both releases are attached.
Craig S. Tyle
Assistant General Counsel
Attachment