The SEC imposed sanctions against an investment adviser and its president for engaging in options trading in a mutual fund portfolio that exceeded the limited scope of what was disclosed in the fund’s prospectus and statement of additional information, which stated that options could be used for hedging purposes only. According to the SEC’s settlement order, the actual level of options trading, which was as high as 21% of total assets in 2009 and 75% in 2010, went “well beyond hedging and amounted to speculation.” In addition, the SEC specifically references the fact that the notional values of the option contracts entered into by the fund significantly exceeded the value of the fund’s assets as a clear indication that the options purchases were higher than the amount that would be required to hedge the portfolio. The SEC’s Settlement Order is available here.