SEC STAFF RESPONDS TO QUESTIONS ABOUT MONEY MARKET FUNDS

The following is an excerpt from the SEC web site:

“Question 1
Q: Under new SEC rules, money market funds must report their portfolio holdings and other information to the SEC on Form N-MFP. Will this information be available to the public?
A: Yes, on a 60-day delayed basis. Rule 30b1-7(b) states that the "Commission will make the information filed on Form N-MFP available to the public 60 days after the end of the month to which the information pertains." For example, information reported on Form N-MFP for November 2010 will be available 60 days after November 30. Because the 60th day after November 30 (January 29, 2011) is a Saturday, the information will be available to the public the next business day (Monday, January 31, 2011). More recent but less detailed information about money market fund portfolio holdings is available on fund websites, and that information must be posted within 5 business days after the end of the month.
Question 2
Q: How do I find the publicly available information that money market funds file on Form N-MFP?
A: Information filed on Form N-MFP will be available on the Commission's Electronic Data Gathering, Analysis and Retrieval web page ("EDGAR"), which is at http://www.sec.gov/edgar.shtml. You can retrieve the information in different ways, including a readable format in which information corresponds to the items of the form, or the data format the fund used to submit the information to the Commission (eXtensible Markup Language or "XML").
Useful links on the Commission's website include "Search for Company Filings" (http://www.sec.gov/edgar/searchedgar/webusers.htm), where you can enter the fund's ticker symbol. You can also find links to this information through money market funds' websites that include portfolio holdings information. In addition, it is likely that financial publications will include some of the publicly available information filed on Form N-MFP by money market funds.
Question 3
Q: Money market funds report the "shadow price" of their net asset value ("NAV") per share on Form N-MFP (Items 18 and 25). What is a shadow price?
A: A money market fund's shadow price is the NAV per share most recently calculated using available market quotations (or an appropriate substitute that reflects current market conditions). In other words, it is the NAV that reflects the current market value of the securities the fund owns, rather than the amortized cost of those securities. SEC rules permit a money market fund to value its securities at cost and spread out (or amortize) any discounts given or premiums paid on the securities when the fund acquired them. SEC rules also permit a fund to round the cost-based NAV to the nearest penny per share. Both of these provisions, combined with the strict limits on money market fund investments under SEC rules, enable a money market fund to maintain a stable NAV, typically $1 per share.
Question 4
Q: What does it mean if a money market fund's shadow price NAV differs from the $1 per share at which the fund sells and redeems its shares?
A: Because the markets are constantly changing, a money market fund's market based (shadow price) NAV is constantly changing too. Therefore it is not uncommon for a fund's shadow price NAV per share to differ from exactly $1.0000 per share, for example due to interest rate changes that affect securities values in a fund's portfolio. As long as the fund's shadow price NAV per share is at least 99½ cents (or $0.995) and no greater than 100½ cents (or $1.005), the fund can continue to sell and redeem shares at $1 per share. If a money market fund's shadow price NAV per share goes outside these limits, the fund may need to re-price its shares at a value other than $1 per share, an event known as "breaking the buck." In the past couple of decades since money market funds began, two money market funds have broken the buck. It is also important to remember that the shadow price NAV shown on publicly available Form N-MFP information is at least 60 days old and is likely not the fund's current shadow price NAV. More recent monthly information (including portfolio holdings but not necessarily including shadow prices) is available on money market fund websites. Some money market funds post information on their websites more often than monthly.
Question 5
Q: Where can I find out more about money market funds, net asset values, etc.?
A: SEC publications you may find useful include:
Investor Bulletin: Focus on Money Market Funds (http://www.sec.gov/investor/alerts/mmf-investoralert.htm)
Mutual Funds: A Guide for Investors (http://www.sec.gov/investor/pubs/sec-guide-to-mutual-funds.pdf)
http://www.sec.gov/divisions/investment/guidance/formn-mfpqa-info.htm "

SEC ALLEGES JUPITER GROUP CAPITAL ADVISORS MADE FALSE STATEMENTS TO SEC

The following case is an excerpt from the SEC web site:

“Litigation Release No. 21961 / May 10, 2011
SEC CHARGES INVESTMENT FIRM AND ITS PRESIDENT WITH FALSE STATEMENTS
Firm and President Refused to Comply with SEC Requests to Examine Records
The Securities and Exchange Commission today announced it has obtained a court order against an investment firm purportedly located in Kirkland, Wash., and its president, who lives in Honolulu, for making false statements in a report to the SEC and refusing to allow the Commission’s staff to review the firm’s books and records.
U.S. District Court Judge Leslie E. Kobayashi issued a temporary restraining order on May 9 requiring the firm to produce the firm’s books and records for examination and providing additional equitable relief.
The SEC alleges that Jupiter Group Capital Advisors LLC and Rick Cho falsely reported that the advisory firm managed $153 million in 38 investor accounts. The false statements were made on Jupiter Group’s Form ADV filing – the public form used by investment advisers to register with the SEC or state securities authorities. When SEC staff sought to conduct an examination of Jupiter Group after the filing was made, Cho initially failed to respond and then later claimed that the filing referred to estimated future assets and stated that Jupiter Group has no client accounts.
According to the SEC’s complaint, Cho refused to provide any evidence for his claim that the assets identified on Jupiter Group’s March 2010 Form ADV filing with the SEC belong to an unrelated business venture. He also failed to explain why the document originally filed in October 2009 was amended to show an increased number of clients and assets under management, when in reality there weren’t any client accounts. The SEC alleges that Jupiter Group did not manage $25 million or more of client assets for any reporting period, and therefore was not eligible for SEC registration. In addition, from December 2010 to the present, Jupiter Group and Cho have refused to submit to an examination.
The SEC alleges that Jupiter Group violated Sections 203A, 204, and 207 of the Investment Advisers Act, and that Cho violated Section 207 of the Advisers Act and aided and abetted Jupiter Group’s violations of Sections 203A and 204 of the Advisers Act. The parties stipulated to the terms of the May 9 temporary restraining order prohibiting Jupiter Group from making false statements in Commission filings, and orders requiring Jupiter Group to submit to an examination of its books and records, requiring withdrawal of Jupiter Group’s Form ADV, prohibiting Jupiter Group and Cho from destroying documents, requiring accountings, and granting expedited discovery. The Commission also requested a preliminary injunction, permanent injunction, and civil penalties. The court set a hearing regarding the preliminary injunction for May 31, 2011 at 9:45 a.m.”

JUDGE ORDERS COMMODITY COMPANY MANAGEMENT TO PAY MILLIONS

Investing in foreign currencies might be a bit of a gamble especially if the people you are placing your money with are dishonest. The old adage “It’s all Greek to me,” might be something foreign currency investors should bear in mind. The following is an excerpt from the CFTC website: “Washington, DC - The U.S. Commodity Futures Trading Commission (CFTC) today announced that the Honorable Judge John Antoon II of the U.S. District Court for the Middle District of Florida ordered Capital Blu Management, LLC (Capital Blu) of Melbourne, Fla., Donovan Davis Jr. of Palm Bay, Fla., Damien Bromfield of Ocoee, Fla., Blayne Davis of Naples, Fla., and DD International Holdings, LLC (DDIH) of Palm Bay, Fla., jointly and severally to pay restitution of $2,463,592.12. Judge Antoon ordered Bromfield and Blayne Davis each to pay a civil monetary penalty of $4,927,184.24 and ordered Donovan Davis Jr. and DDIH jointly and severally to pay a civil monetary penalty of the same amount. The federal order, entered on June 9, 2011, also permanently bars all defendants from engaging in any commodity-related activity, including trading and registering with the CFTC The order follows a verdict returned on February 3, 2011 against Donovan Davis Jr. and Bromfield by a jury in Orlando, Fla., that heard testimony and arguments for almost three weeks. In 2009, the CFTC charged the defendants with operating a fraudulent commodity pool that solicited approximately $17 million from about 100 investors purportedly to invest in off-exchange foreign currency futures (see CFTC Press Release 5643-09, April 7, 2009). According to the evidence adduced at trial, Donovan Davis Jr. (through his wholly owned company, DDIH) and Bromfield were two of the three principals of Capital Blu, a commodity pool operator that managed a foreign currency trading fund called the CBM FX Fund, LP. Donovan Davis Jr. was Capital Blu’s Director of Corporate Affairs and Bromfield was its Director of Operations. The third principal of Capital Blu, Blayne Davis, was the Director of Trading. Because Blayne Davis, Capital Blu and DDIH did not respond to the CFTC’s complaint, the court entered default judgments against them. According to the evidence presented at trial, Capital Blu began soliciting participants for the CBM FX Fund in August 2007 and ultimately obtained contributions from participants totaling approximately $17 million. In January 2008, the CBM FX Fund sustained losses of about $1.8 million. Instead of reporting a loss for the month to the participants, Donovan Davis Jr. instructed Capital Blu’s Controller to report a 1.6 percent gain for January 2008. Thereafter, Bromfield, Donovan Davis Jr. and Blayne Davis developed and implemented a plan to put the money that had been lost back into the CBM FX Fund, which included raising additional funds from new participants, trading aggressively and falsifying statements to participants. At roughly this same time, Capital Blu’s expenses began to exceed its revenue. At the direction of its principals, Capital Blu began to pay operating expense with money from the CBM FX Fund. These expenses included the purchase and operation of a jet. After some short-term trading success from April to July 2008, in August 2008 the CBM FX Fund sustained millions of dollars in losses. Instead of reporting these losses, Bromfield and Donovan Davis Jr. again provided participants with falsified statements and reported a 0.16 percent profit for August 2008. Bromfield and Donovan Davis Jr. also sent participants a notice that their funds would be locked up for four months. All the while, Bromfield, Donovan Davis Jr. and Blayne Davis continued to use CBM FX Fund money to pay operating expenses, including their own salaries of $15,000 per month each. Capital Blu’s operations were shut down after the National Futures Association (NFA) conducted a surprise audit in September 2008 after receiving information from several sources, including an employee of Capital Blu. During the trial and a subsequent damages hearing conducted on March 2, 2011 before Judge Antoon, the CFTC established that, from January 2008 through September 2008, the CBM FX Fund sustained trading losses of approximately $5.4 million and defendants misappropriated approximately $2.46 million of participants’ funds. Judge Antoon ordered the defendants to pay the amount misappropriated as restitution and ordered a civil monetary penalty equal to twice the amount that the defendants misappropriated. The CFTC thanks the NFA for its assistance.”

FORMER GALLEON MANAGER SETTLES INSIDER TRADING CHARGES

The case below is an excerpt from the SEC web site:
June 17, 2011
The Securities and Exchange Commission announced today that, on May 31, 2011, The Honorable Jed S. Rakoff of the United States District Court for the Southern District of New York entered a judgment against Adam Smith in SEC v. Adam Smith, 11-CV-0535, an insider trading case the SEC filed on January 26, 2011.
The Complaint alleged that Smith, a former portfolio manager at New York-based hedge fund investment adviser Galleon Management, LP, traded in the securities of ATI Technologies Inc., based on material nonpublic information concerning the acquisition of ATI by Advanced Micro Devices Inc. that was announced in July 2006. Prior to the announcement, Smith learned of the acquisition from an investment banker, who had received such information while serving as an employee of an investment bank that was advising one of the parties to the acquisition.
To settle the SEC’s charges, Smith consented to the entry of a judgment that: (i) permanently enjoins him from future violations of Section 10(b) of the Securities Exchange Act of 1934 and Rule 10b-5 thereunder; and (ii) orders him to pay disgorgement and prejudgment interest, for a total of $149,706.25. The judgment further provides that, based on his agreement to cooperate with the Commission, the Court is not ordering Smith to pay a civil penalty. In a related SEC administrative proceeding, Smith consented to the entry of an SEC order barring him from association with any investment adviser, broker, dealer, municipal securities dealer, or transfer agent. Smith previously pleaded guilty to charges of securities fraud and conspiracy to commit securities fraud in a related criminal case, United States v. Adam Smith, 1:11-cr-00079 (S.D.N.Y.), and is awaiting sentencing.”

COURT ORDERS FOUNDING PARTNERS CAPITAL EXEC. TO PAY 31 MILLION FOR FRAUD

The following is an excerpt from the SEC web site:
“The Commission announced that on June 13, 2011, the United States District Court for the Middle District of Florida, upon Motion of the Commission, has issued an Order and Opinion Setting Disgorgement and Prejudgment Interest Amounts and Imposing a Civil Penalty against Defendant William L. Gunlicks. A supplemental final judgment was issued on June 15, 2011 ordering Gunlicks to pay disgorgement in the amount of $28,635,966.55 representing the ill-gotten gains received, pre-judgment interest in the amount of $2,193,842.31, and a civil penalty in the amount of $1,000,000.00.
The Complaint filed by the Commission against Gunlicks and Founding Partners Capital Management, Co. on April 20, 2009 alleged violation of the antifraud provisions of the federal securities laws. On March 3, 2010 an Order of Permanent Injunction by Consent was entered against Gunlicks, enjoining him from violating Section 17(a) of the Securities Act of 1933, Section 10(b) and Rule 10b-5 of the Securities Exchange Act of 1934, and Sections 206(1), 206(2), 206(4) and Rule 206(4)-8 of the Investment Advisers Act of 1940. The Court will retain jurisdiction of this matter for the purpose of implementing the payment terms of the judgment.”

FORMER BOARD CHAIRMAN OF FIRST CASH FINANCIAL SERVICES CHARGED WITH INSIDER TRADING

Filed June 10, 2011

Securities insider trading is possibly the most heinous crime someone can commit against honest investors. Many would argue that Ponzi schemes are worse for the market. However, Ponzi crimes are often perpetrated upon people who do not have the technical skills to examine an investment using both mathematics along with the prerequisite skill do be able to look at a situation and realize something must be wrong in order to generate large rates of returns. Insider trading offers no clues at all to even the most astute investor before money is committed and lost since only the insider has the necessary information to make the right call and when that insider makes that right call then all the most technically oriented and sophisticated investors may well pay the price and then declare openly that “the U.S. securities market is rigged”. Thus, not only are the trading markets seen as being compromised and fixed but, the entire capitalist system is then seen as corrupt and without any redemptive remedies.

In the following case, the SEC has alleged that the former chairman of the board of First Cash Financial Services, Inc. engaged in insider trading. Below is an excerpt from the SEC website:


The Securities and Exchange Commission today charged Phillip E. (Rick) Powell, former chairman of the board of First Cash Financial Services, Inc. (“First Cash”), with illegal insider trading. The SEC’s Complaint, filed in United States District Court for the Western District of Texas (Waco Division), alleges that in early March 2008 Powell, while he was serving as the chairman of the board of First Cash, learned material, non-public information about the commencement of a company share buyback.
According to the Complaint, on November 6, 2007, the company had announced that it had authorized a buyback of up to 1 million First Cash shares. That announcement did not disclose when the authority would be exercised or even whether management would actually exercise the authority. The SEC alleges that Powell, through his position as chairman of First Cash’s board of directors, later learned, among other things, that First Cash had decided to actually exercise its repurchase authority and was set to begin the repurchase.
According to the Complaint, Powell, armed with this material, non-public information, called his broker on March 11, the same day that First Cash entered into an agreement with JP Morgan Securities to facilitate the repurchase and the day before First Cash began repurchasing its shares. He instructed the broker to buy 100,000 First Cash shares. According to the SEC’s Complaint, Powell insisted that the purchase needed to be made that day.
As alleged in the Complaint, Powell’s pre-buyback purchases caused First Cash to overpay $36,000 for its own securities between March 12 and March 14, 2008. In addition, the SEC alleges that, as a result of the share price increase following disclosure that the buyback had commenced, Powell profited in the amount of $124,000 from his illegal purchase.
Powell is alleged to have repeatedly tried to hide his trading from First Cash and its shareholders. For example, the Complaint alleges that he misled another board member when he was warned against purchasing in advance of the buyback, and later he misled First Cash’s chief executive officer when he asked about the trade. In addition, after his broker warned him that Commission rules required him to file a Form 4 disclosing his trade, he refused to do so and delayed filing his Form 4 until April 30, 2009, over thirteen months after it was required by Commission rules and only after he knew the Commission was investigating his trades.
The SEC’s complaint alleges that, as a result of his conduct, Powell violated Sections 10(b) and 16(a) of the Securities Exchange Act of 1934 and Rules 10b-5 and 16a-3 thereunder. The Commission seeks permanent injunctive relief, disgorgement of illicit profits with prejudgment interest, a monetary penalty, and an order barring Powell from serving as an officer or director of a public company.
The Commission acknowledges the assistance of the U.S. Attorney’s Office for the Northern District of Texas and the Federal Bureau of Investigation.”