NASAA NO LONGER SUPPORTS SRO FOR ADVISORY INDUSTRY
2.24.2003 The North American Securities Administrators Association (NASAA) released the following statement about a proposed self-regulatory organization for the advisory industry:
The NASAA Board of Directors earlier this month voted to recommend to the membership that NASAA rescind its 1989 vote endorsing a self-regulatory organization (SRO) for investment advisers. Following passage of the National Securities Markets Improvement Act of 1996, regulation of investment advisers was divided between the Securities and Exchange Commission and the states, a division of labor that is working well, the Board believes. NASAA’s earlier endorsement of an SRO for investment advisers needs to be re-examined in light of the changed regulatory landscape. The Board is concerned that an SRO could result in unnecessary and overlapping regulation and potentially be a burden on small business. The issue will be discussed at a NASAA membership meeting in Washington, D.C. on Sunday, April 6.
Please click http://www.nasaa.org/nasaa/abtnasaa/display_top_story.asp?stid=345 for the press release.
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FORMER HEDGE FUND MANAGER INDICTED FOR FRAUD
2.18.2002 The United States Attorney for the Northern District of Illinois filed criminal charges against Edward Thomas Jung,
the former manager of a hedge fund known as Strategic Income Fund, L.L.C. The indictment charges Jung with ten counts of wire and securities fraud in connection with a fraudulent
scheme that caused approximately 55 investors to lose more than $21
million.
In June of 2001, the SEC filed a civil complaint against Jung and
ETJ Partners in connection with the scheme described above, charging
Jung and ETJ Partners had violated the antifraud provisions of the
federal securities laws. On March 28, 2002, the
SEC entered an order in an administrative proceeding filed
against Jung and ETJ Partners which barred Jung from association with
any broker or dealer or investment adviser and which revoked ETJ
Partners registration with the SEC as a broker-dealer.
Please click http://www.sec.gov/litigation/litreleases/lr17995.htm to access a copy of the administrative action.
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NEW RULE GOVERNS CUSTODY OF INVESTMENT COMPANY ASSETS WITH U.S. SECURITIES DEPOSITORIES
2.13.2003 The SEC adopted amendments to Rule 17f-4 under the Investment
Company Act of 1940, which governs the use of U.S. securities
depositories by investment companies. The amendments
update and simplify the rule in response to changes in
custody law and practice that have occurred since the rule was adopted
in 1978. For example, the amendments eliminate unnecessary restrictions in the rule
on investment companies and investment company boards, expand the
functions that a securities depository can perform, and expand the types
of investment companies that can rely on the rule.
Please click http://www.sec.gov/rules/final/ic-25934.htm for a copy of the adopting release.
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FINAL ORDER ENTERED AGAINST ADVISER FOR MISAPPROPRIATING CLIENT ASSETS
2.11.2003 The United States District Court for the District of Massachusetts
entered a final judgment by consent against former money manager Stevin
R. Hoover and his two wholly-owned entities, Hoover Capital
Management, Inc. (HCM), formerly a registered investment adviser, and
Chestnut Management LLC, an unregistered investment adviser. In its complaint, the SEC alleged that between 1995 and 2001,
Hoover misappropriated funds from investment advisory clients, including
the Chestnut Fund LP, a hedge fund founded and managed by Hoover. The
SEC also alleged that Hoover solicited and obtained investments
in the hedge fund by making fraudulent misrepresentations to prospective
investors, and that Hoover attempted to conceal his misappropriations by
distributing fictitious account statements to investors.
Without admitting or denying the SEC's allegations, Hoover and
his entities consented to a final judgment ordering them to pay
disgorgement and prejudgment interest in the amount of $1,011,007.48.
The defendants also agreed to entry of injunctions that permanently
enjoin them from future violations of the Securities
Act of 1933, the Securities Exchange Act of 1934 and
Rule 10b-5 thereunder, and the Investment
Advisers Act of 1940. In a related administrative proceeding, Hoover was permanently bared from associating with an investment adviser.
Please click http://www.sec.gov/litigation/litreleases/lr17981.htm for the release announcing the administrative action.
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HEDGE FUND ADVISER CHARGED WITH MAKING A FRAUDULENT OFFER
2.6.2003 The SEC instituted an administrative action against Paul J. House and Brandon R. Moore, settling a charge that they defrauded clients who invested in a hedge fund ("Hedge Fund") sponsored by them.
The SEC had alleged that House and Moore, from March 2000 until June 2002, raised approximately $2.9 million from at least 60 investors by selling the investors units in the Hedge Fund. The SEC alleged that they, in the course of offering units to Hedge Fund investors, made materially false and misleading statements. According to the SEC's complaint, they falsely told investors that the Hedge Fund had generated cumulative returns of up to 148% when the Hedge Fund had lost at least $850,000 during its operation. The SEC's complaint alleged also that House and Moore misrepresented the use of proceeds to investors by claiming that the proceeds would be used to engage in a profitable securities trading program when they borrowed at least $400,000 from the Hedge Fund to purchase real estate for themselves. Further, the SEC alleged that they made false and misleading statements in offering materials about House's background as a broker and omitted to disclose prior personal bankruptcies.
Please click http://www.sec.gov/litigation/admin/ia-2108.htm for the release announcing the administrative action.
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SEC PROPOSES RULES REQUIRING ADVISERS TO HAVE COMPLIANCE PROCEDURES
2.4.2003 The SEC proposed rules requiring investment advisers to:
The SEC also proposed rules that would require mutual funds to adopt and implement policies and procedures designed to prevent violation of the federal securities laws by the fund, its investment adviser, principal underwriter, and administrator in connection with their provision of services to the funds.
Please click http://www.sec.gov/rules/proposed/ic-25925.htm to access a copy of the rule proposal.
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INVESTMENT COMPANY AND ADVISER PROXY VOTING RULES ADOPTED
2.1.2003 The SEC adopted rules requiring investment companies and investment advisers to disclose their proxy voting policies and procedures and their actual proxy votes cast. These amendments are designed to enable fund shareholders to monitor their funds' involvement in the governance activities of portfolio companies and to encourage funds to vote their proxies in the best interest of fund shareholders.
The amendments will require a fund to disclose in its registration statement the policies and procedures that it uses to determine how to vote proxies relating to portfolio securities. This disclosure would include the procedures that a fund uses when a vote presents a conflict between the interests of fund shareholders, on the one hand, and those of the fund's investment adviser, principal underwriter, or certain of their affiliates, on the other. The amendments will require a fund to file new Form N-PX, containing its complete proxy voting record for the 12-month period ended June 30 by no later than August 31 of each year. A fund will be required to state in its reports to shareholders that information about the fund's proxy voting policies and procedures is available without charge, upon request, by calling a specified toll-free (or collect) telephone number; on the fund's Web site, if applicable; and on the SEC's Web site. A fund will be required to state in its registration statement and reports to shareholders that the fund files its proxy voting record with the SEC and that the record is available on the SEC's Web site and from the fund. A fund will be permitted to make the proxy voting record available either on its Web site or upon request.
The new rule will require investment advisers that exercise proxy voting authority over client securities to adopt and implement written policies and procedures for voting client proxies. The policies and procedures must be reasonably designed to ensure the adviser votes client securities in the best interests of clients, and they must address how the adviser addresses material conflicts of interest that may arise between the adviser and its clients. The new rule will require investment advisers to describe their proxy voting policies and procedures to clients, and furnish a copy of them to clients upon request. The rule also requires investment advisers to tell clients how they can obtain information from the adviser on how the clients' securities were voted.
Please click http://www.sec.gov/rules/final/33-8188.htm for a copy of the investment company proxy rule release.
Please click http://www.sec.gov/rules/final/ia-2106.htm for a copy of the investment adviser proxy rule release.
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