August 31, 1990
TO: SEC RULES MEMBERS NO. 62-90
RE: SEC COMPLAINT ALLEGES PORTFOLIO MANAGER DEFRAUDED FUND
AND ITS SHAREHOLDERS
__________________________________________________________
The SEC has filed a complaint in the United States District
Court for the Western District of Texas alleging that the
portfolio manager for a series of a registered investment company
("Fund") violated the federal securities laws by engaging in a
scheme to defraud the Fund and its shareholders. A copy of the
complaint is attached.
According to the complaint, the portfolio manager caused
the Fund to purchase securities of two Canadian companies at
artificially inflated prices, in return for which he received
kickbacks. Among other things, such purchases violated the
Fund's investment policies that prohibited it from investing more
than 5% of its assets in the securities of any one company,
investing more than 5% of its assets in companies with operating
histories of less than three years and acquiring more than 10% of
the outstanding voting securities of a single company. The
complaint also names as defendants two individuals who controlled
the two Canadian companies mentioned above, based on their
participation in the scheme.
The complaint, which seeks permanent injunctions
restraining the defendants' activities and orders for an
accounting and disgorgement of unlawfully obtained profits,
alleges that all three defendants through their actions in
furtherance of the scheme violated Sections 17(a)(1), 17(a)(2)
and 17(a)(3) of the Securities Act of 1933 as well as Section
10(b) of the Securities Exchange Act of 1934 and Rule 10b-5
thereunder. The complaint further charges that the portfolio
manager aided and abetted violations of Sections 206(1) and
206(2) of the Investment Advisers Act of 1940. In addition,
according to the complaint, the portfolio manager violated
Sections 17(a)(1), 17(e)(1), 17(j) (and Rule 17j-1 thereunder),
36(a) and 37 of the Investment Company Act of 1940.
Frances M. Stadler
Assistant General Counsel
Attachment