The SEC barred an Arizona-based mutual fund manager from the securities industry for failing to follow the fund’s investment objectives.
According to the SEC order instituting settled administrative proceedings against the manager and the fund’s adviser, the fund’s prospectuses, statements of additional information and shareholder report provided that the fund could trade options only for hedging purposes. However, starting in September 2009, the fund allegedly invested in put options for speculative purposes. The SEC stated that the fund’s speculative options trading resulted in significant losses to the fund, which led to investor redemptions and ultimately the fund’s liquidation in December 2010.
The SEC order finds that the adviser and the manager willfully violated the antifraud provisions of the Securities Act, the Exchange Act, the Advisers Act and the Investment Company Act. The order also finds that the adviser and the manager caused the fund to violate Section 13(a) (3) of the Investment Company Act, which prohibits registered investment companies from deviating from a stated fundamental investment policy. SEC sanctions included the censure of the adviser and bar of the manager from the securities industry.