The Commission ordered BOIA to pay disgorgement of $10 million and a civil penalty of $40 million and ordered Beeson to pay a civil penalty of $100,000. BOIA also consented to a cease-and-desist order and a censure, and agreed to undertake certain compliance and mutual-fund governance reforms. In addition, Beeson consented to a two-year bar from the mutual-fund industry and a three-year prohibition on serving as an officer or director of a mutual fund or investment adviser.
Stephen M. Cutler, Director of the SEC's Division of Enforcement, said, “By allowing Stern to market time in One Group funds, and by providing him with information about the funds’ confidential portfolio holdings, Banc One and Mark Beeson blatantly disregarded the well-being of One Group funds’ long-term shareholders. Today’s sanctions show that the Commission continues to aggressively pursue mutual-fund advisers – and their senior management – when they place their own interests above those of fund investors.”
The Commission found that BOIA violated, and Beeson aided and abetted and caused violations of, the federal securities laws by: (1) allowing excessive short-term trading in One Group funds by hedge-fund manager Edward J. Stern in the hope of attracting additional business, which created a conflict of interest because the trading increased BOIA’s advisory fees but was potentially harmful to One Group funds; (2) failing to charge Stern redemption fees as required by One Group’s international-fund prospectuses when other investors were charged the redemption fees; (3) having no written procedures in place to prevent the nonpublic disclosure of One Group portfolio holdings and improperly providing confidential portfolio holdings to Stern when other shareholders were not provided the same information; and (4) causing One Group funds to participate in joint transactions (a BOIA affiliate loaned money to Stern for the purpose of market-timing), raising a conflict of interest. The Commission also found, among other things, that BOIA allowed excessive short-term trading in One Group funds by a Michigan market timer in violation of fund prospectuses and failed to collect required redemption fees from a Texas hedge fund.
The Commission ordered BOIA to pay disgorgement of $10 million and a civil penalty of $40 million and ordered Beeson to pay a civil penalty of $100,000. BOIA also consented to a cease-and-desist order and a censure, and agreed to undertake certain compliance and mutual-fund governance reforms. In addition, Beeson consented to a two-year bar from the mutual-fund industry and a three-year prohibition on serving as an officer or director of a mutual fund or investment adviser.
Robert J. Burson, Senior Associate Regional Director of the SEC's Midwest Regional Office, stated, "This case sends the message that mutual-fund advisers cannot tell investors one thing and then do another. One Group’s prospectuses clearly forbade market timing — but BOIA and Beeson allowed it anyway.” In the Order, the Commission found that:
- The One Group’s fund 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 Stern through 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 transactions in One Group international funds, BOIA and Beeson failed to charge Stern approximately $4 million in redemption fees, as required by those funds’ prospectuses.
- Despite the language of the One Group’s fund 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.
- In March 2003, BOIA allowed a Texas hedge fund to execute two exchange transactions in One Group international funds without collecting approximately $840,000 in redemption fees required by the prospectuses.
- Beeson provided listings of the confidential portfolio holdings of several One Group funds to Stern when that information was not provided to the public, to the possible detriment of the funds and their shareholders.
- BOIA 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 their shareholders.
- BOIA and Beeson caused certain One Group funds to enter into joint arrangements whereby Bank One loaned money to Stern with the express understanding that the loan proceeds would be invested in One Group funds. In addition, Bank One loaned money to a Michigan market-timer to market-time mutual funds. Bank One earned interest on those loans and BOIA generated mutual-fund sales and associated fees by allowing approved timing activity in One Group funds. By contrast, the affected One Group funds obtained little or no benefit from this unauthorized activity.
