US Securities Law Newswire
Former Officer to Pay $150,000
Washington, D.C., Sept. 19, 2007 – The Securities and Exchange Commission today announced settled enforcement actions against registered investment adviser Evergreen Investment Management Company (Evergreen), three of its affiliates, and a former officer, alleging that, contrary to prospectus disclosures, they allowed certain shareholders to market time and engage in excessive exchange activity in the Evergreen mutual fund complex.
“By failing to enforce the specific trading limits in the mutual fund prospectuses, Evergreen ignored the interests of the mutual fund investors who were harmed by this market-timing activity,” said Linda Thomsen, Director of the Commission’s Division of Enforcement. “The Commission will continue to hold mutual fund companies and their officers responsible for failing to meet this fundamental responsibility.”
David Bergers, Director of the Commission’s Boston Regional Office, said, “When mutual fund complexes tell investors that they have limits on harmful trading, they must take the steps necessary to enforce those limits. Evergreen failed to do so, and investors in the Evergreen Funds suffered substantial harm as a result.”
Evergreen and three affiliates, Evergreen Investment Services, Inc., and Evergreen Service Company, all based in Boston, Mass., and Wachovia Securities, based in Richmond, Va. (the affiliates), will pay $28.5 million in disgorgement and a total of $4 million in civil penalties. William M. Ennis, a former officer of Evergreen who resides in Charleston, S.C., will pay $1 in disgorgement plus a civil penalty of $150,000. The payments will be distributed according to a plan to be developed by an independent distribution consultant under the Fair Fund provisions of the Sarbanes-Oxley Act.
The Commission’s Orders find that Evergreen, the affiliates and Ennis entered into an agreement to allow a registered representative of a broker-dealer to market time at Evergreen funds in excess of trading limits set forth in the funds’ prospectuses. The Commission’s Order as to Evergreen and the affiliates further finds that they generally failed to enforce these limits as to other traders, which resulted in substantial trading activity that imposed costs on the funds and impaired their performance.
Among other things, the Commission’s Orders set forth the following factual findings.
In January 2000, at the request of Wachovia Securities, Ennis agreed to permit a registered representative whom Wachovia Securities was attempting to recruit, to market time even though Ennis knew that Evergreen had an anti-market timing policy that was incorporated into each Evergreen mutual fund prospectus and that market timing could disrupt fund management and harm fund performance.
Consistent with its anti-market timing policy, each Evergreen mutual fund prospectus stated, “Exchanges are limited to three per calendar quarter, but in no event more than five per calendar year.”@ However, because Evergreen failed to adopt procedures to enforce these restrictions until October 2003, many traders exceeded the posted limits in several funds. This excessive trading activity imposed costs and management disruptions on the funds, impaired their performance, and rendered their prospectuses misleading. From September 1998 to June 30, 2004, the excessive trading activity diluted the funds’ value by a total of nearly $29 million.
The Commission’s Order as to Evergreen and the affiliates, in addition to ordering the payment of disgorgement and civil penalties, censures Evergreen and the affiliates and requires them to cease and desist from committing or causing any future violations of various provisions of the federal securities laws. The Order also requires Evergreen to retain an independent compliance consultant to review various policies and procedures.
The Commission’s Order as to Ennis, in addition to ordering him to pay disgorgement and a civil penalty, requires him to cease and desist from committing or causing any future violations of various provisions of the federal securities laws and prohibits him from associating with an investment adviser, broker, dealer, transfer agent or investment company with the right to reapply for association after one year.
Pursuant to their respective offers of settlement, Evergreen, the affiliates and Ennis consented to entry of the Commission’s Orders without admitting or denying the findings contained therein.
For more information, contact:
David P. Bergers
Boston Regional Office