July 13, 1990
TO: INVESTMENT ADVISER MEMBERS NO. 30-90
RE: SEC SANCTIONS INVESTMENT ADVISER TO MUTUAL FUNDS
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The SEC recently sanctioned an investment adviser to two
mutual funds for violating Sections 206(1) and 206(2) of the
Investment Advisers Act by failing to timely reimburse the fund
for expenses it received in excess of its contractual 2 percent
limit and continuing to accept a management fee from the funds
during the period the reimbursement was due. The SEC also found
that the failure to reimburse the funds resulted in a loan
between the funds and the adviser in violation of Section
17(a)(3) of the Investment Company Act.
In addition, the adviser was found to have violated the
anti-fraud provisions of the securities laws since the funds'
registration statements and prospectuses contained inaccuracies
and omissions regarding these matters, and the adviser failed to
disclose all material facts regarding its poor financial
condition which was reasonably likely to impair its ability to
meet contractual commitments to clients. The SEC also found that
an affiliated broker-dealer of the funds violated Section
17(a)(1) of the Investment Company Act when it sold securities to
the funds acting as principal for those trades.
The adviser was suspended for 90 days and the broker-dealer
was suspended for 45 days pursuant to the settlement order. A
copy of the SEC order is attached.
W. Richard Mason
Assistant General Counsel
Attachment