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Solo-k Plan
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With more than two decades of operational and management experience We have developed a sharp eye for how businesses get clobbered with retirement plan fees and limited investment options. We empathetically help other business owners create the retirement programs that get results through checkbook control and self directed investments.
Saturday, November 16, 2013
Friday, November 08, 2013
Are Solo-k Plans the Same as Traditional 401k Plans?
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| Solo-k Plan |
Traditional 401k Plans are subject to all Sections of ERISA legislation. All plans covered by Title I of ERISA as described in DOL Reg. 2510.3–3, including traditional 401k plans became exempt from State law after January 1, 1975.
Plans not covered by Title I, such as sole proprietor, partner and corporate Solo-k plans where the company is wholly owned by an individual and/or spouse and the plan covers only the owner and the owner’s spouse, and Keogh plans covering only (i) sole proprietors and their spouses, or (ii) partners and their spouses as well as continue to be subject to state trust investment law.
Wednesday, November 06, 2013
To Pay or Not to Pay Fees from Solo-k Plan Assets
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| Solo-k Plan |
Here are some of the things to keep in mind when considering whether or not to pay investment advisory fees from Solo-k plan assets:
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Paying Fees from the Solo-k plan has Reasonability Implications.
Are the Fees Reasonable? In deciding to
pay advisory fees from Solo-k plan assets, you need to assess whether the fees are reasonable. If fees are based on a percentage of
assets, the Solo-k plan’s asset growth may cause the fees to cease being reasonable. Consider
benchmarking the fees against those of other advisory offerings every few
years.
Consider your Goals and desired Return over the long haul.
A $500,000 account balance will have an account that is
worth approximately $350,000:-- $150,000 less after 20 years if the Solo-k plan’s
investments are invested with just an extra 25 basis points (.25%), assuming an
annual 7% rate of return. Is the $150,000 additional cost worth it?
Deduction for
Company Paid Solo-k plan Expenses.
A Solo-k plan Sponsoring Company may deduct the Solo-k plan
expenses that it pays. You should take into account the value of the
deduction in assessing the cost of paying Solo-k plan expenses.
Tuesday, November 05, 2013
IRS Announces 2014 Pension Plan Limitations
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| Solo-k Plan |
The Internal Revenue Service announced cost‑of‑living adjustments
affecting dollar limitations for pension plans and other retirement-related
items for tax year 2014.
Highlights include the following:
· The elective deferral (contribution)
limit for employees who participate in 401(k) plans remains unchanged at
$17,500.
·
The catch-up contribution limit for
employees aged 50 and over who participate in 401(k) Plan remains unchanged at
$5,500.
·
The limit on annual contributions to an
Individual Retirement Arrangement (IRA) remains unchanged at $5,500. The
additional catch-up contribution limit for individuals aged 50 and over is not
subject to an annual cost-of-living adjustment and remains $1,000.
·
The deduction for taxpayers making
contributions to a traditional IRA is phased out for singles and heads of
household who are covered by a workplace retirement plan and have modified
adjusted gross incomes (AGI) between $60,000 and $70,000, up from $59,000 and
$69,000 in 2013. For married couples filing jointly, in which the spouse
who makes the IRA contribution is covered by a workplace retirement plan, the
income phase-out range is $96,000 to $116,000, up from $95,000 to $115,000.
For an IRA contributor who is not covered by a workplace retirement plan
and is married to someone who is covered, the deduction is phased out if the
couple’s income is between $181,000 and $191,000, up from $178,000 and
$188,000. For a married individual filing a separate return who is
covered by a workplace retirement plan, the phase-out range is not subject to
an annual cost-of-living adjustment and remains $0 to $10,000.
·
The AGI phase-out range for taxpayers
making contributions to a Roth IRA is $181,000 to $191,000 for married couples
filing jointly, up from $178,000 to $188,000 in 2013. For singles and
heads of household, the income phase-out range is $114,000 to $129,000, up from
$112,000 to $127,000. For a married individual filing a separate return,
the phase-out range is not subject to an annual cost-of-living adjustment and
remains $0 to $10,000.
The total contribution limitation for defined contribution plans is
increased in 2014 from $51,000 to $52,000.
The individual employee limitation on the exclusion for elective
deferrals remains unchanged at $17,500.
The annual compensation limit is increased from $255,000 to
$260,000.
The dollar limitation concerning the definition of key employee in
a top-heavy plan is increased from $165,000 to $170,000.
The limitation used in the definition of highly compensated
employee remains unchanged at $115,000.
Monday, September 11, 2006
For Better or Worse- Lack of Spousal Consent Can Cost You
A woman who claimed that a plan distribution form indicating her consent to her late husband’s distribution election was never properly notarized and therefore invalid has the agreement of a federal judge
The husband had elected a split distribution: one half in a lump sum and one half in an annuity without survivor benefits. The husband passed away after having received the lump sum distribution and two annuity payments. The wife then sued over the waiver's validity.
ERISA requires that the distribution waiver form be witnessed by a plan representative or a notary. In this case the notary had stamped the document without the wife present The US District Court threw out the waiver form signed by the woman, finding it had not been properly witnessed by a plan representative or a notary as required by ERISA.
The form did not include a standard declaration that the wife had executed the form in front of the notary. The plan argued that the requirement of a witness was a mere technicality that should not invalidate the wife's signature, but the court disagreed.
While acknowledging that outside of ERISA courts have found flaws in notarizations to be insufficient to defeat the validity of a document, the court noted that those cases "did not involve the ERISA strict requirements leading to the loss of benefits by a surviving spouse."
The case is Alfieri v. Guild Times Pension Plan, 2006 E.D.N.Y. 2006.
The husband had elected a split distribution: one half in a lump sum and one half in an annuity without survivor benefits. The husband passed away after having received the lump sum distribution and two annuity payments. The wife then sued over the waiver's validity.
ERISA requires that the distribution waiver form be witnessed by a plan representative or a notary. In this case the notary had stamped the document without the wife present The US District Court threw out the waiver form signed by the woman, finding it had not been properly witnessed by a plan representative or a notary as required by ERISA.
The form did not include a standard declaration that the wife had executed the form in front of the notary. The plan argued that the requirement of a witness was a mere technicality that should not invalidate the wife's signature, but the court disagreed.
While acknowledging that outside of ERISA courts have found flaws in notarizations to be insufficient to defeat the validity of a document, the court noted that those cases "did not involve the ERISA strict requirements leading to the loss of benefits by a surviving spouse."
The case is Alfieri v. Guild Times Pension Plan, 2006 E.D.N.Y. 2006.
Tuesday, September 05, 2006
Do You Make This Mistake When You Reveal Your Age to the 401k Administrator?
For years, Maria Zdzienicki told her employer, Con Edison, that she was born in 1939. She provided Con Edison with sworn documents, such as immigration papers, confirming this to be true. Years later, when her pension benefits were about to begin, she reportedly told the company that she had actually been born five years earlier, in 1934. She claimed that she was therefore entitled to a larger pension benefit. In support of this claim, she submitted copies of her Polish birth certificate, Polish marriage license, and Polish passport.
The Con Edison pension plan administrator denied her request for additional benefits, citing the reason that there was sufficient evidence in the record to conclude that Maria was born in 1939, irrespective of what the Polish documents indicated.
Maria sued in federal court under ERISA, arguing that the plan administrator's decision was arbitrary and capricious. The parties stipulated that the administrator did not attempt to investigate the authenticity of the Polish documents. Zdzienicki conceded that the plan granted discretionary authority to the administrator to determine eligibility for benefits, decide factual questions, and resolve issues regarding plan administration.
In ruling for the defendants, the federal court found that "the plan administrator's decision to calculate Zdzienicki's pension benefits was not arbitrary and capricious and therefore did not violate ERISA."
The court explained that the administrator's decision was supported by voluminous documentary evidence, including Zdzienicki's sworn statement at the outset of her employment, her United States government issued Certificate of Naturalization, her New York State driver's abstract, her diploma from the Warsaw University of Technology, her 1990 COBRA forms, her employment authorization form and her 1993 medical laboratory reports. Also supporting the decision was the fact that Zdzienicki did not attempt to correct Con Edison's records of her date of birth until April 2003, when her pension payments were about to begin. This was 23 years after she first told the company that she was born on July 30, 1939.
It would not have been unthinkable for the Con Edison administrator to conclude that if Zdzienicki were truly born in 1934, she would have informed the company of that fact in 1990, when it twice sent her forms showing that her pension benefits would be calculated using 1939 as her year of birth, or at least in 1999, when, had Zdzienicki been born in 1934, she would have turned 65 and thus would have been entitled to pension payments at that time. Thus, "a reasonable mind" could view the evidence in the administrative record "as adequate to support the conclusion" that Zdzienicki was born on July 30, 1939.
The cite is Zdzienicki v. Consolidated Edison Co. of New York, 2006 WL 2482668 (S.D.N.Y. Aug. 29, 2006).
The Con Edison pension plan administrator denied her request for additional benefits, citing the reason that there was sufficient evidence in the record to conclude that Maria was born in 1939, irrespective of what the Polish documents indicated.
Maria sued in federal court under ERISA, arguing that the plan administrator's decision was arbitrary and capricious. The parties stipulated that the administrator did not attempt to investigate the authenticity of the Polish documents. Zdzienicki conceded that the plan granted discretionary authority to the administrator to determine eligibility for benefits, decide factual questions, and resolve issues regarding plan administration.
In ruling for the defendants, the federal court found that "the plan administrator's decision to calculate Zdzienicki's pension benefits was not arbitrary and capricious and therefore did not violate ERISA."
The court explained that the administrator's decision was supported by voluminous documentary evidence, including Zdzienicki's sworn statement at the outset of her employment, her United States government issued Certificate of Naturalization, her New York State driver's abstract, her diploma from the Warsaw University of Technology, her 1990 COBRA forms, her employment authorization form and her 1993 medical laboratory reports. Also supporting the decision was the fact that Zdzienicki did not attempt to correct Con Edison's records of her date of birth until April 2003, when her pension payments were about to begin. This was 23 years after she first told the company that she was born on July 30, 1939.
It would not have been unthinkable for the Con Edison administrator to conclude that if Zdzienicki were truly born in 1934, she would have informed the company of that fact in 1990, when it twice sent her forms showing that her pension benefits would be calculated using 1939 as her year of birth, or at least in 1999, when, had Zdzienicki been born in 1934, she would have turned 65 and thus would have been entitled to pension payments at that time. Thus, "a reasonable mind" could view the evidence in the administrative record "as adequate to support the conclusion" that Zdzienicki was born on July 30, 1939.
The cite is Zdzienicki v. Consolidated Edison Co. of New York, 2006 WL 2482668 (S.D.N.Y. Aug. 29, 2006).
Thursday, August 31, 2006
Why Do I Need my Spouse's Consent for 401(k) Loan
As a spouse has an interest in the accrued benefit of a participant, the plan does not satisfy the survivor annuity requirement unless the plan provides that, at the time the participant's accrued benefit is used as security for a loan, spousal consent to such use is obtained. Consent is required even if the accrued benefit is not the primary security for the loan.
No spousal consent is necessary if, at the time the loan is secured, no consent would be required for a distribution under $5,000. Spousal consent is not required if the total accrued benefit subject to the security is not in excess of the cash-out limit ($5,000) in effect under 1.411(a),11(c)(3)(ii).
The spousal consent must be obtained no earlier than the beginning of the 90-day period that ends on the date on which the loan is to be so secured. The consent must be in writing, must acknowledge the effect of the loan and must be witnessed by a plan representative or a notary public.
Participant consent is deemed obtained at the time the participant agrees to use his accrued benefit as security for a loan for purposes of satisfying the requirements for participant consent under sections 401(a)(11), 411(a)(11) and 417.
Change in status.
If spousal consent is obtained or is not required at the time the benefits are used as security, spousal consent is not required at the time of any setoff of the loan against the accrued benefit resulting from a default, even if the participant is married to a different spouse at the time of the setoff. Similarly, in the case of a participant who secured a loan while unmarried, no consent is required at the time of a setoff of the loan against the accrued benefit even if the participant is married at the time of the setoff.
Renegotiation.
For purposes of obtaining any required spousal consent, any renegotiation, renewal, or refinancing that revises a loan shall be treated as a new loan made on the date of the renegotiation, refinancing, renewal, or other revision.
Internal Revenue Code 1.401(a) -20 Q & A 24
No spousal consent is necessary if, at the time the loan is secured, no consent would be required for a distribution under $5,000. Spousal consent is not required if the total accrued benefit subject to the security is not in excess of the cash-out limit ($5,000) in effect under 1.411(a),11(c)(3)(ii).
The spousal consent must be obtained no earlier than the beginning of the 90-day period that ends on the date on which the loan is to be so secured. The consent must be in writing, must acknowledge the effect of the loan and must be witnessed by a plan representative or a notary public.
Participant consent is deemed obtained at the time the participant agrees to use his accrued benefit as security for a loan for purposes of satisfying the requirements for participant consent under sections 401(a)(11), 411(a)(11) and 417.
Change in status.
If spousal consent is obtained or is not required at the time the benefits are used as security, spousal consent is not required at the time of any setoff of the loan against the accrued benefit resulting from a default, even if the participant is married to a different spouse at the time of the setoff. Similarly, in the case of a participant who secured a loan while unmarried, no consent is required at the time of a setoff of the loan against the accrued benefit even if the participant is married at the time of the setoff.
Renegotiation.
For purposes of obtaining any required spousal consent, any renegotiation, renewal, or refinancing that revises a loan shall be treated as a new loan made on the date of the renegotiation, refinancing, renewal, or other revision.
Internal Revenue Code 1.401(a) -20 Q & A 24
Sunday, August 20, 2006
Fidelity Bonds under The Pension Protection Act of 2006
Fidelity Bonds under the
Pension Protection Act of 2006
Before PPA-2006, each person subject to the bonding
requirement had to be covered by a bond in an
amount equal to at least 10% of the plan assets
handled by such person, with a minimum bond
amount of $1,000, and a maximum of $500,000
PPA-2006 raises the maximum bond amount to
$1,000,000 for a plan that holds employer securities,
regardless of whether a bonded person actually
handles employer securities. Although a technical
explanation states that Congress did not consider a
plan to hold employer securities if it owns them
through a broadly diversified fund, the scope or
effect of this indication is unclear. The technical
explanation refers to mutual funds and index funds.
Since Mutual Funds are not considered to hold Plan Assets,
having employer securities in a Mutual Fund does not incur the
higher bonding. However, Hedge Funds holding Employer Securities
as an option under the plan would be subject to the higher bondng requirement.
Pension Protection Act of 2006
Before PPA-2006, each person subject to the bonding
requirement had to be covered by a bond in an
amount equal to at least 10% of the plan assets
handled by such person, with a minimum bond
amount of $1,000, and a maximum of $500,000
PPA-2006 raises the maximum bond amount to
$1,000,000 for a plan that holds employer securities,
regardless of whether a bonded person actually
handles employer securities. Although a technical
explanation states that Congress did not consider a
plan to hold employer securities if it owns them
through a broadly diversified fund, the scope or
effect of this indication is unclear. The technical
explanation refers to mutual funds and index funds.
Since Mutual Funds are not considered to hold Plan Assets,
having employer securities in a Mutual Fund does not incur the
higher bonding. However, Hedge Funds holding Employer Securities
as an option under the plan would be subject to the higher bondng requirement.
Saturday, July 22, 2006
Recovery Funds for 401k Plans
The Securities and Exchange Commission (SEC) has entered into settlement agreements with certain mutual funds relating to alleged late trading and market timing activities. Pursuant to the settlements, distribution funds have been created to make distributions to affected qualified retirement plans. For each distribution fund, an independent distribution consultant has been appointed to distribute the settlement fund
This page lists the SEC enforcement cases in which a Receiver, Disbursement Agent, or Claims Administrator has been appointed. Funds that are recovered and available for investors will be distributed according to an approved plan.
For example:
for each orgnaization listed, you may want to find out whether a private class action has been filed against the company you invested in.
For additional information, please visit the SEC website: http://www.sec.gov/divisions/enforce/claims/alphatelcom.html
Specific Examples of penalties and profit disgorgement include:
Admin. Proc. File No. 3-11818
$375,000,000 from Bank of America
(image placeholder)
In the Matter of
Banc of America Capital Management, LLC, BACAP Distributors, LLC, and Banc of America Securities, LLC,
Respondent.
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On the basis of this Order and Respondents' Offers, the Commission finds that:
Summary
1. From as early as July 2000 and continuing through July 2003, Banc of America Capital Management, LLC ("BACAP") and its predecessor entity Banc of America Advisers, LLC, the investment adviser to all mutual funds, or series, in the Nations Funds mutual fund complex (the "Nations Funds") as well as BACAP Distributors, LLC ("BACAP Distributors"), the distributor and administrator for Nations Funds, allowed certain market timing clients to engage in short-term or excessive trading and never disclosed this fact to other investors.
Administrative Proceeding File No.3-11359
$250,000,000 from Alliance Capital
(image placeholder)
In the Matter of
ALLIANCE CAPITAL MANAGEMENT, L.P.,
Respondent.
(image placeholder)AMENDED ORDER INSTITUTING ADMINISTRATIVE AND CEASE-AND-DESIST PROCEEDINGS PURSUANT TO SECTIONS 203(e) AND 203(k) OF THE INVESTMENT ADVISERS ACT OF 1940 AND SECTIONS 9(b) AND 9(f) OF THE INVESTMENT COMPANY ACT OF 1940, MAKING FINDINGS, AND IMPOSING REMEDIAL SANCTIONS AND A CEASE-AND-DESIST ORDER
I.Summary
1. This proceeding concerns Alliance Capital's negotiated, but undisclosed, arrangements with market timers -- arrangements that benefited Alliance Capital to the detriment of investors in mutual funds managed by Alliance Capital. In those arrangements, Alliance Capital provided "timing capacity" in mutual funds to known timers in return for or in connection with the timers' investments of "sticky assets" in Alliance Capital managed hedge funds, mutual funds and other investment vehicles, from which Alliance Capital earned management fees. Alliance Capital's single biggest timer received at its height $220 million in timing capacity in Alliance Capital mutual funds in return for investments at agreed ratios in hedge funds managed by some of the same portfolio managers. The prospectuses for these mutual funds gave the misleading impression that Alliance Capital sought to prevent timing in these mutual funds. Alliance Capital failed to disclose that, in fact, it negotiated agreements to permit timing in return for the sticky assets. At their height in 2003, Alliance Capital had over $600 million in approved timing in its mutual funds. Alliance Capital permitted these arrangements despite awareness of the harmful effects timing can have on mutual funds and the ability to detect and prevent inappropriate timing in mutual funds. By entering into these arrangements, Alliance Capital breached its fiduciary duty to the mutual funds in which it arranged the timing.
2. In addition to the arrangements, Alliance Capital accommodated timers through other means. In part in order to enable the portfolio manager of one mutual fund to deal with the effects of timers in his fund, rather than simply prohibit timing in the fund, Alliance Capital obtained approval of the mutual fund's board and shareholders to lift a restriction on futures trading in the fund. Alliance Capital failed to disclose to the fund's board or shareholders that one of the reasons for recommending the proposal was to accommodate better the Alliance Capital-approved timers.
3. Finally, Alliance Capital provided material nonpublic information about the portfolio holdings of certain mutual funds to at least one of the timers. This disclosure enabled that timer to profit from market timing in declining markets.
Administrative ProceedingFile No. 3-11450
$50,000,000 from MFS
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In the Matter of
Massachusetts Financial Services Company,
Respondent.
(image placeholder) NOTICE OF PROPOSED PLAN FOR THE DISTRIBUTION OF A FAIR FUND AND OPPORTUNITY FOR COMMENT
THE PROPOSED PLAN OF DISGORGEMENT
The Distribution Plan generally provides for distribution "fairly and proportionately to the MFS Funds the total disgorgement and penalty ordered in [the Order] based upon the amounts of brokerage commissions coded for fund 'Sales' attributed to each fund." The MFS Funds are the registered investment companies for which MFS is the investment adviser, including the retail mutual funds, registered closed-end funds, MFS Variable Insurance Trust, MFS Institutional Trust, and variable annuity and variable insurance funds known as MFS/Sun Life Series Trust and Compass Accounts. The proposed plan provides that each MFS Fund shall receive a proportionate share of the funds paid by MFS comprised of $1 (one dollar) in disgorgement and a civil money penalty of $50 million (fifty million dollars).
For the Commission, by its Secretary, pursuant to delegated authority.
__________________________Margaret H. McFarlandDeputy Secretary
ADMINISTRATIVE PROCEEDING File No. 3-11530
$50,000,000 From Banc One
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In the Matter of
BANC ONE INVESTMENT ADVISORS CORPORATION AND MARK A. BEESON,
Respondents.
(image placeholder) ORDER INSTITUTING ADMINISTRATIVE AND CEASE-AND-DESIST PROCEEDINGS, MAKING FINDINGS, AND IMPOSING REMEDIAL SANCTIONS AND A CEASE-AND-DESIST ORDER PURSUANT TO SECTIONS 203(e), 203(f), AND 203(k) OF THE INVESTMENT ADVISERS ACT OF 1940, AND SECTIONS 9(b) AND 9(f) OF THE INVESTMENT COMPANY ACT OF 1940
The Securities and Exchange Commission (“Commission”) deems it appropriate and in the public interest that public administrative and cease-and-desist proceedings be, and hereby are, instituted pursuant to Sections 203(e), 203(f), and 203(k) of the Investment Advisers Act of 1940 (“Advisers Act”), and Sections 9(b) and 9(f) of the Investment Company Act of 1940 (“Investment Company Act”) against Banc One Investment Advisors Corporation (“BOIA”) and Mark A. Beeson (“Beeson”) (collectively, “Respondents”).
In anticipation of the institution of these proceedings, Respondents have submitted Offers of Settlement (the “Offers”) which the Commission has determined to accept. Solely for the purpose of these proceedings and any other proceedings brought by or on behalf of the Commission, or to which the Commission is a party, and without admitting or denying the findings herein, except as to the Commission’s jurisdiction over them and the subject matter of these proceedings, Respondents consent to the entry of this Order Instituting Administrative and Cease-and-Desist Proceedings, Making Findings, and Imposing Remedial Sanctions and a Cease-and-Desist Order Pursuant to Sections 203(e), 203(f), and 203(k) of the Investment Advisers Act of 1940, and Sections 9(b) and 9(f) of the Investment Company Act of 1940 (“Order”), as set forth below.
On the basis of this Order and Respondents’ Offers, the Commission finds that:
1. From at least March 2002 through April 2003, BOIA, an investment adviser, and Beeson, President and Chief Executive Officer of One Group Mutual Funds (“One Group”) and a senior managing director of BOIA, violated and/or aided and abetted and caused violations of the antifraud provisions of the Advisers Act and the Investment Company Act by: (1) allowing excessive short-term trading in One Group funds by a hedge-fund manager that was inconsistent with the terms of the funds’ prospectuses and that was potentially harmful to the funds; (2) failing to disclose to the One Group Board of Trustees or to shareholders the conflict of interest created when Respondents entered into a market-timing arrangement with a hedge-fund manager that was potentially harmful to One Group, but that would increase BOIA’s advisory fees and potentially attract additional business; (3) failing to charge the hedge-fund manager redemption fees as required by the international funds’ prospectuses when other investors were charged the redemption fees; (4) having no written procedures in place to prevent the nonpublic disclosure of One Group portfolio holdings and improperly providing confidential portfolio holdings to the hedge-fund manager when shareholders were not provided with or otherwise privy to the same information; and (5) causing One Group funds, without the knowledge of the funds’ trustees, to participate in joint transactions raising a conflict of interest in violation of the Investment Company Act.
2. In addition, between June 1999 and May 2003, BOIA further violated the antifraud provisions of the Advisers Act and the Investment Company Act by: (1) allowing excessive short-term trading in One Group funds by a Michigan market-timer that was inconsistent with the terms of the funds’ prospectuses and that was potentially harmful to the funds; (2) failing to disclose to the One Group Board of Trustees or to shareholders the conflict of interest created when BOIA entered into a market-timing arrangement with a Michigan market-timer that was potentially harmful to One Group, but that would increase BOIA’s advisory fees; (3) failing to charge a Texas hedge fund redemption fees as required by the international funds’ prospectuses when other investors were charged the redemption fees; and (4) having no written procedures in place to prevent the nonpublic disclosure of One Group portfolio holdings and improperly providing confidential portfolio holdings to certain other entities.
3. The One Group funds’ prospectuses stated that One Group restricted excessive exchange activity in all One Group funds. BOIA enforced those provisions. But despite the prospectuses’ language, Beeson entered into an agreement with hedge-fund manager Edward J. Stern (“Stern”) pursuant to which Stern executed approximately 300 exchange transactions within certain One Group funds. This agreement was made in the hope that it would lead to additional business from Stern for various BOIA affiliates. The transactions, which occurred between June 2002 and May 2003, earned Stern a profit of approximately $5.2 million. In connection with some of those transactions, BOIA and Beeson also failed to charge Stern approximately $4 million in redemption fees, as required by those funds’ prospectuses.
4. Also despite language of the One Group funds’ prospectuses, from June 1999 to December 2001, BOIA allowed a Michigan market timer to execute approximately 100 exchange transactions in One Group international funds, resulting in a profit to the market timer of approximately $1.24 million. Further, in March 2003, certain BOIA employees allowed a Texas hedge fund to execute two exchange transactions in the international funds without collecting approximately $840,000 in redemption fees required by the prospectuses.
5. Finally, BOIA regularly provided listings of the confidential portfolio holdings of many One Group funds to favored clients (including Stern), prospective clients, and consultants when that information was not provided to the public, to the possible detriment of the funds and
$5,000,000 from Bridgeway Capital Management
____________________________________
In the Matter of : Order Approving Plan of Disgorgement
: Distribution and Appointing Administrator
Bridgeway Capital Management, Inc. and :
John Noland Ryan Montgomery, :
Respondents. :
____________________________________:
On February 10, 2005, the Commission published notice of the Plan of Disgorgement
Distribution (“Plan”) proposed by the Division of Enforcement (“Division”) in this proceeding.
The Plan proposed that $4,407,700 of disgorgement and $458,764 of prejudgment interest paid
by respondent Bridgeway Capital pursuant to the Commission’s Order issued on September 15,
2004, be distributed pro rata among the eligible current and former shareholders of Bridgeway
Capital’s Aggressive Investors 1, Aggressive Investors 2, and Micro-Cap Limited mutual funds,
who were overcharged as a result of the misconduct described in the Commission’s September
15 order.
The Commission received no comments in response to the publication of the Division’s
proposed Plan.
The Division proposes in its Plan, as amended on March 16, 2005, that Stephen Webster,
Assistant District Administrator, Ft. Worth District Office, be designated as Administrator of the
Plan.
Accordingly,
IT IS ORDERED that the Plan is approved; and
IT IS FURTHER ORDERED that Stephen Webster is appointed as Administrator of the
Plan in accordance with the terms of the Plan.
For the Commission, by its Secretary, pursuant to delegated authority.
_____________________________
Jonathan G. Katz
Secretary
This page lists the SEC enforcement cases in which a Receiver, Disbursement Agent, or Claims Administrator has been appointed. Funds that are recovered and available for investors will be distributed according to an approved plan.
For example:
- Funds from Banc of America totaled $350,000,000,
- from Banc One totaled $50,000,000,
- from Capital Alliance totaled $250,000,000,
- from MFS totaled $50,000,000 and
- from Bridgeway Capital Management totaled $5,000,000.
for each orgnaization listed, you may want to find out whether a private class action has been filed against the company you invested in.
For additional information, please visit the SEC website: http://www.sec.gov/divisions/enforce/claims/alphatelcom.html
Specific Examples of penalties and profit disgorgement include:
Admin. Proc. File No. 3-11818
$375,000,000 from Bank of America
(image placeholder)
In the Matter of
Banc of America Capital Management, LLC, BACAP Distributors, LLC, and Banc of America Securities, LLC,
Respondent.
(image placeholder)
On the basis of this Order and Respondents' Offers, the Commission finds that:
Summary
1. From as early as July 2000 and continuing through July 2003, Banc of America Capital Management, LLC ("BACAP") and its predecessor entity Banc of America Advisers, LLC, the investment adviser to all mutual funds, or series, in the Nations Funds mutual fund complex (the "Nations Funds") as well as BACAP Distributors, LLC ("BACAP Distributors"), the distributor and administrator for Nations Funds, allowed certain market timing clients to engage in short-term or excessive trading and never disclosed this fact to other investors.
Administrative Proceeding File No.3-11359
$250,000,000 from Alliance Capital
(image placeholder)
In the Matter of
ALLIANCE CAPITAL MANAGEMENT, L.P.,
Respondent.
(image placeholder)AMENDED ORDER INSTITUTING ADMINISTRATIVE AND CEASE-AND-DESIST PROCEEDINGS PURSUANT TO SECTIONS 203(e) AND 203(k) OF THE INVESTMENT ADVISERS ACT OF 1940 AND SECTIONS 9(b) AND 9(f) OF THE INVESTMENT COMPANY ACT OF 1940, MAKING FINDINGS, AND IMPOSING REMEDIAL SANCTIONS AND A CEASE-AND-DESIST ORDER
I.Summary
1. This proceeding concerns Alliance Capital's negotiated, but undisclosed, arrangements with market timers -- arrangements that benefited Alliance Capital to the detriment of investors in mutual funds managed by Alliance Capital. In those arrangements, Alliance Capital provided "timing capacity" in mutual funds to known timers in return for or in connection with the timers' investments of "sticky assets" in Alliance Capital managed hedge funds, mutual funds and other investment vehicles, from which Alliance Capital earned management fees. Alliance Capital's single biggest timer received at its height $220 million in timing capacity in Alliance Capital mutual funds in return for investments at agreed ratios in hedge funds managed by some of the same portfolio managers. The prospectuses for these mutual funds gave the misleading impression that Alliance Capital sought to prevent timing in these mutual funds. Alliance Capital failed to disclose that, in fact, it negotiated agreements to permit timing in return for the sticky assets. At their height in 2003, Alliance Capital had over $600 million in approved timing in its mutual funds. Alliance Capital permitted these arrangements despite awareness of the harmful effects timing can have on mutual funds and the ability to detect and prevent inappropriate timing in mutual funds. By entering into these arrangements, Alliance Capital breached its fiduciary duty to the mutual funds in which it arranged the timing.
2. In addition to the arrangements, Alliance Capital accommodated timers through other means. In part in order to enable the portfolio manager of one mutual fund to deal with the effects of timers in his fund, rather than simply prohibit timing in the fund, Alliance Capital obtained approval of the mutual fund's board and shareholders to lift a restriction on futures trading in the fund. Alliance Capital failed to disclose to the fund's board or shareholders that one of the reasons for recommending the proposal was to accommodate better the Alliance Capital-approved timers.
3. Finally, Alliance Capital provided material nonpublic information about the portfolio holdings of certain mutual funds to at least one of the timers. This disclosure enabled that timer to profit from market timing in declining markets.
Administrative ProceedingFile No. 3-11450
$50,000,000 from MFS
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In the Matter of
Massachusetts Financial Services Company,
Respondent.
(image placeholder) NOTICE OF PROPOSED PLAN FOR THE DISTRIBUTION OF A FAIR FUND AND OPPORTUNITY FOR COMMENT
THE PROPOSED PLAN OF DISGORGEMENT
The Distribution Plan generally provides for distribution "fairly and proportionately to the MFS Funds the total disgorgement and penalty ordered in [the Order] based upon the amounts of brokerage commissions coded for fund 'Sales' attributed to each fund." The MFS Funds are the registered investment companies for which MFS is the investment adviser, including the retail mutual funds, registered closed-end funds, MFS Variable Insurance Trust, MFS Institutional Trust, and variable annuity and variable insurance funds known as MFS/Sun Life Series Trust and Compass Accounts. The proposed plan provides that each MFS Fund shall receive a proportionate share of the funds paid by MFS comprised of $1 (one dollar) in disgorgement and a civil money penalty of $50 million (fifty million dollars).
For the Commission, by its Secretary, pursuant to delegated authority.
__________________________Margaret H. McFarlandDeputy Secretary
ADMINISTRATIVE PROCEEDING File No. 3-11530
$50,000,000 From Banc One
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In the Matter of
BANC ONE INVESTMENT ADVISORS CORPORATION AND MARK A. BEESON,
Respondents.
(image placeholder) ORDER INSTITUTING ADMINISTRATIVE AND CEASE-AND-DESIST PROCEEDINGS, MAKING FINDINGS, AND IMPOSING REMEDIAL SANCTIONS AND A CEASE-AND-DESIST ORDER PURSUANT TO SECTIONS 203(e), 203(f), AND 203(k) OF THE INVESTMENT ADVISERS ACT OF 1940, AND SECTIONS 9(b) AND 9(f) OF THE INVESTMENT COMPANY ACT OF 1940
The Securities and Exchange Commission (“Commission”) deems it appropriate and in the public interest that public administrative and cease-and-desist proceedings be, and hereby are, instituted pursuant to Sections 203(e), 203(f), and 203(k) of the Investment Advisers Act of 1940 (“Advisers Act”), and Sections 9(b) and 9(f) of the Investment Company Act of 1940 (“Investment Company Act”) against Banc One Investment Advisors Corporation (“BOIA”) and Mark A. Beeson (“Beeson”) (collectively, “Respondents”).
In anticipation of the institution of these proceedings, Respondents have submitted Offers of Settlement (the “Offers”) which the Commission has determined to accept. Solely for the purpose of these proceedings and any other proceedings brought by or on behalf of the Commission, or to which the Commission is a party, and without admitting or denying the findings herein, except as to the Commission’s jurisdiction over them and the subject matter of these proceedings, Respondents consent to the entry of this Order Instituting Administrative and Cease-and-Desist Proceedings, Making Findings, and Imposing Remedial Sanctions and a Cease-and-Desist Order Pursuant to Sections 203(e), 203(f), and 203(k) of the Investment Advisers Act of 1940, and Sections 9(b) and 9(f) of the Investment Company Act of 1940 (“Order”), as set forth below.
On the basis of this Order and Respondents’ Offers, the Commission finds that:
1. From at least March 2002 through April 2003, BOIA, an investment adviser, and Beeson, President and Chief Executive Officer of One Group Mutual Funds (“One Group”) and a senior managing director of BOIA, violated and/or aided and abetted and caused violations of the antifraud provisions of the Advisers Act and the Investment Company Act by: (1) allowing excessive short-term trading in One Group funds by a hedge-fund manager that was inconsistent with the terms of the funds’ prospectuses and that was potentially harmful to the funds; (2) failing to disclose to the One Group Board of Trustees or to shareholders the conflict of interest created when Respondents entered into a market-timing arrangement with a hedge-fund manager that was potentially harmful to One Group, but that would increase BOIA’s advisory fees and potentially attract additional business; (3) failing to charge the hedge-fund manager redemption fees as required by the international funds’ prospectuses when other investors were charged the redemption fees; (4) having no written procedures in place to prevent the nonpublic disclosure of One Group portfolio holdings and improperly providing confidential portfolio holdings to the hedge-fund manager when shareholders were not provided with or otherwise privy to the same information; and (5) causing One Group funds, without the knowledge of the funds’ trustees, to participate in joint transactions raising a conflict of interest in violation of the Investment Company Act.
2. In addition, between June 1999 and May 2003, BOIA further violated the antifraud provisions of the Advisers Act and the Investment Company Act by: (1) allowing excessive short-term trading in One Group funds by a Michigan market-timer that was inconsistent with the terms of the funds’ prospectuses and that was potentially harmful to the funds; (2) failing to disclose to the One Group Board of Trustees or to shareholders the conflict of interest created when BOIA entered into a market-timing arrangement with a Michigan market-timer that was potentially harmful to One Group, but that would increase BOIA’s advisory fees; (3) failing to charge a Texas hedge fund redemption fees as required by the international funds’ prospectuses when other investors were charged the redemption fees; and (4) having no written procedures in place to prevent the nonpublic disclosure of One Group portfolio holdings and improperly providing confidential portfolio holdings to certain other entities.
3. The One Group funds’ prospectuses stated that One Group restricted excessive exchange activity in all One Group funds. BOIA enforced those provisions. But despite the prospectuses’ language, Beeson entered into an agreement with hedge-fund manager Edward J. Stern (“Stern”) pursuant to which Stern executed approximately 300 exchange transactions within certain One Group funds. This agreement was made in the hope that it would lead to additional business from Stern for various BOIA affiliates. The transactions, which occurred between June 2002 and May 2003, earned Stern a profit of approximately $5.2 million. In connection with some of those transactions, BOIA and Beeson also failed to charge Stern approximately $4 million in redemption fees, as required by those funds’ prospectuses.
4. Also despite language of the One Group funds’ prospectuses, from June 1999 to December 2001, BOIA allowed a Michigan market timer to execute approximately 100 exchange transactions in One Group international funds, resulting in a profit to the market timer of approximately $1.24 million. Further, in March 2003, certain BOIA employees allowed a Texas hedge fund to execute two exchange transactions in the international funds without collecting approximately $840,000 in redemption fees required by the prospectuses.
5. Finally, BOIA regularly provided listings of the confidential portfolio holdings of many One Group funds to favored clients (including Stern), prospective clients, and consultants when that information was not provided to the public, to the possible detriment of the funds and
$5,000,000 from Bridgeway Capital Management
____________________________________
In the Matter of : Order Approving Plan of Disgorgement
: Distribution and Appointing Administrator
Bridgeway Capital Management, Inc. and :
John Noland Ryan Montgomery, :
Respondents. :
____________________________________:
On February 10, 2005, the Commission published notice of the Plan of Disgorgement
Distribution (“Plan”) proposed by the Division of Enforcement (“Division”) in this proceeding.
The Plan proposed that $4,407,700 of disgorgement and $458,764 of prejudgment interest paid
by respondent Bridgeway Capital pursuant to the Commission’s Order issued on September 15,
2004, be distributed pro rata among the eligible current and former shareholders of Bridgeway
Capital’s Aggressive Investors 1, Aggressive Investors 2, and Micro-Cap Limited mutual funds,
who were overcharged as a result of the misconduct described in the Commission’s September
15 order.
The Commission received no comments in response to the publication of the Division’s
proposed Plan.
The Division proposes in its Plan, as amended on March 16, 2005, that Stephen Webster,
Assistant District Administrator, Ft. Worth District Office, be designated as Administrator of the
Plan.
Accordingly,
IT IS ORDERED that the Plan is approved; and
IT IS FURTHER ORDERED that Stephen Webster is appointed as Administrator of the
Plan in accordance with the terms of the Plan.
For the Commission, by its Secretary, pursuant to delegated authority.
_____________________________
Jonathan G. Katz
Secretary
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