May 4, 1995
TO: COMPLIANCE COMMITTEE No. 20-95
INVESTMENT ADVISER MEMBERS No. 22-95
SEC RULES MEMBERS No. 32-95
SUBCOMMITTEE ON ADVERTISING No. 6-95
RE: SEC ADMINISTRATIVE PROCEEDINGS FOR ALLEGEDLY FALSE
ADVERTISEMENTS
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The Securities and Exchange Commission recently instituted administrative proceedings with
respect to performance claims made in newsletter advertisements and investment company
advertisements. A copy of the CommissionGs order instituting the administrative proceedings is attached.
The Commission brought proceedings against an investment adviser ( the “Adviser”), a general
partner of the Adviser (the “Marketing Partner”) that performs all marketing and other services for an
investment company advised by the Adviser (the “Fund”), the publisher of an investment newsletter (the
“Publisher”) that is affiliated with these entities, various controlling persons of these entities (the
“Controlling Persons”), and the marketing manager for the Marketing Partner (the “Marketing
Manager”). The Commission alleges that advertisements in the newsletter claimed that an investor using
a market-timing program developed by one of the Controlling Persons could have turned an investment
of $10,000 in 1980 into $39,160,394 by 1992. The Commission alleges that an investor could have not
done so, because the market-timing program has been “constantly adjusted and revised” since its
inception, and because the claimed “earnings” were simulated results that could be obtained only by
retroactively applying the continually updated version of the market-timing program.
The Commission also alleges that the representation in the advertisement depended on using trading
strategies that only became available long after 1980.
The Commission further alleges that advertisements for the Fund were sent to subscribers of the
newsletter. The Commission alleges that the Fund advertisements falsely implied that the results touted
in the newsletter advertisements would be obtained by the Fund and falsely suggested that the Fund
would use the same market-timing program in making Fund investments. The Commission alleges that
the Marketing Partner violated Section 17(a) of the Securities Act of 1933, Section 10(b) of the
Securities Exchange Act of 1934, Rule 10b-5 thereunder, and Section 34(b) of the Investment Company
Act of 1940, and that the Adviser, Publisher, Controlling Persons and Marketing Manager aided and
abetted those violations.
Thomas M. Selman
Associate Counsel
Attachment