September 23, 1992
TO: INVESTMENT ADVISER MEMBERS NO. 41-92
SEC RULES MEMBERS NO. 39-92
COMPLIANCE COMMITTEE NO. 12-92
RE: SEC REVOKES REGISTRATION OF ADVISER FOR FAILURE TO
REIMBURSE FUND EXPENSES
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The Securities and Exchange Commission recently sanctioned
an investment adviser and its president for the adviser’s failure
to reimburse certain expenses to a mutual fund client.
The SEC found that the adviser violated Sections 206(1) and
206(2) of the Investment Advisers Act by failing to timely repay
the fund’s 1989 expenses that exceeded the adviser’s portion of a
voluntary expense limitation agreement with the mutual fund. The
SEC also found that the adviser had (1) violated Section 17(a)(3)
of the Investment Company Act in that the adviser’s failure to
reimburse the fund constituted an unlawful borrowing of money
from the fund, (2) continued to accept its full management fees
from the fund for ten months of 1990, despite the adviser’s
failure to reimburse the fund’s 1989 expenses, (3) violated
Sections 206(1) and 206(2) of the Investment Advisers Act by
allowing the accumulation of 1990 expense reimbursements due to
the fund, and (4) committed related violations, or aided and
abetted the fund’s commission of related violations, of the
Investment Company Act and the Investment Advisers Act. Finally,
the SEC found that the adviser’s president (who also was the
fund’s president) had aided and abetted some of the adviser’s
violations.
Without admitting or denying the allegations, the adviser
and its president consented to (1) revocation of the adviser’s
registration, (2) a cease and desist order against the president,
and (3) the president’s bar from association with any investment
adviser or investment company with a twelve-month right to
reapply, and six-month suspension from association with any
broker-dealer or municipal securities dealer.
A copy of the SEC’s order is attached.
Thomas M. Selman
Assistant Counsel
Attachment