September 23, 1993
TO: COMPLIANCE COMMITTEE NO. 21-93
SEC RULES MEMBERS NO. 74-93
RE: PROCEEDINGS INSTITUTED AGAINST MUTUAL FUND INVESTMENT
ADVISER
__________________________________________________________
The SEC has instituted public administrative proceedings against the
investment adviser, and its former president and principal owner ("President"),
to a series fund. A court had previously issued a permanent injunction from
violations of the Investment Company Act of 1940 against the fund.
The SEC alleges that the adviser and President caused one of the series to
make a loan, contrary to its stated investment policies, to fund the purchase of
historic property in New Mexico. The adviser and President allegedly failed to
disclose material facts about the loan in various filings with the SEC and other
publicly disseminated documents. In addition, the SEC alleges that the President
failed to properly disclose the nature and status of another portfolio
investment. Based on this conduct, the adviser and President are alleged to have
willfully aided and abetted the violation of or willfully violated provisions of
the Investment Company Act of 1940, the Securities Act of 1933 and the Securities
Exchange Act of 1934.
In addition, the SEC alleges that the adviser and the President caused
another series of the fund to pay monthly dividends in excess of the fund’s
earnings, resulting in a return of capital, without properly disclosing this
fact, in violation of certain provisions of the Investment Company Act, the
Securities Act and the Exchange Act.
The SEC also alleges that the President (1) caused the fund to have an
improperly constituted board in violation of Sections 10(a) and 16(a) of the 1940
Act; (2) failed to ensure that the individual series filed or timely filed annual
and semi-annual reports with the SEC and distributed them to shareholders, in
violation of Sections 30(b)(1), 30(b)(2), and 30(d) of the 1940
Act and Rules 30b1-1, 30b2-1, and 30d-1 thereunder; (3) caused one of the series
to borrow money in contravention of its investment policies in violation of
Sections 13(a)(2) and 13(a)(3) of the 1940 Act; and (4) caused one of the series
to fail to timely meet shareholder redemption requests in violation of Section
22(e) of the 1940 Act.
A copy of the SEC’s release and order on these proceedings is attached.
Amy B.R. Lancellotta
Associate Counsel
Attachment