May 23, 1994
TO: COMPLIANCE COMMITTEE NO. 10-94
SEC RULES MEMBERS NO. 38-94
RE: RECEIVER APPOINTED TO ADMINISTER MUTUAL FUND
__________________________________________________________
The U.S. District Court for the Southern District of Florida
granted the Securities and Exchange Commission's motion for, among
other things, the appointment of a receiver to take custody of the
assets of a mutual fund and to take prompt action regarding the
future of the fund. The court also enjoined the fund from
effecting offers, sales or redemptions of fund shares.
The Commission alleged in its complaint that at the December
29, 1993 board meeting, the investment advisory agreement was
terminated and all but two members of the board had resigned. In
addition, the president, the secretary/treasurer, fund counsel and
the fund's underwriter had resigned. These resignations and the
floundering status of the fund were not disclosed to shareholders.
As a result, the fund's transfer agent ceased honoring further
sales until the fund's prospectus was updated to make such
disclosure. On April 1, 1994, one of the two board members
resigned. Under the fund's by-laws, the fund's board must have at
least two members and, thus, did not have a functioning board.
In addition, the Commission alleged that as a result of the
fund's deadlocked board, the fund did not hire auditors to audit
the fund's financial statements for the fiscal year ended December
31, 1993 until February 18, 1994, which resulted in the fund
missing its 60 day financial and shareholder reporting deadlines
under the Investment Company Act of 1940.
Finally, the Commission alleged that the fund was delinquent
in its filings with the Commission and had failed to make the
required disclosures to shareholders as required by the Securities
Act of 1933 and the Investment Company Act.
A copy of the Commission's complaint and the court's order is
attached.
Amy B.R. Lancellotta
Associate Counsel
Attachments