October 6, 1995
TO: COMPLIANCE COMMITTEE No. 38-95
INVESTMENT ADVISER MEMBERS No. 45-95
SEC RULES MEMBERS No. 69-95
RE: SEC SANCTIONS PORTFOLIO MANAGER WITH RESPECT TO PERSONAL
TRADING ACTIVITIES
______________________________________________________________________________
The Securities and Exchange Commission recently sanctioned a portfolio manager to
registered investment companies with respect to his personal trades. A copy of the
Commissions order is attached.
The Commission found that the portfolio manager engaged in a pattern of personal
trading in conflict with the interests of his clients while he was associated with two investment
advisers, and that he should have disclosed to his clients his personal financial interest in the
securities that he traded. The Commission found that from 1990 to 1992 the portfolio manager
engaged in 25 transactions, in 24 securities that he was also trading for the investment
companies and other clients that he was advising. Most of the trades allegedly were personal
purchases before client purchases, although some were personal sales during or after client
purchases. According to the Commission, the portfolio manager generally held the securities
for less than one month, held none of the securities in question for more than two and a half
months and made a profit on 22 of the 25 trades. All but one of his trades allegedly occurred
within seven days of clients trades; one trade occurred within 21 days of a trade by a non-
investment company client. According to the Commission, the clients trades generally
represented a large percentage of the securities total trading volume. The Commission also
found that one of the investment advisers with which the portfolio manager was associated
required prior approval of personal trades, but that he failed to obtain such approval or to
report 12 personal securities transactions while associated with this adviser.
Without admitting or denying the Commissions allegations, the portfolio manager
agreed to (1) a censure, (2) disgorgement of over $115,000 plus prejudgment interest, (3)
penalties of $275,000, (4) refrain from all personal trading (except for transactions in registered
investment companies) while associated with an investment adviser or investment company,
(5) refrain from associating with an investment adviser or investment company for a period of
one year unless all of the prospective investors in the registered investment companies he
manages receive notification of the Commissions action before investing, and (6) cease and
desist from future violations of Section 17(j) under the Investment Company Act of 1940 and
Rule 17j-1(a) and (c) thereunder and Sections 206(1) and 206(2) under the Investment Advisers
Act of 1940.
Thomas M. Selman
Associate Counsel
Attachment
Note: Not all recipients of this memo will receive an attachment. If you wish to obtain a copy
of the attachment referred to in this memo, please call the Institute’s Information Resource
Center at (202)326-8305 or (202)326-5903, and ask for this memo’s attachment number: 7325.