AColumbia Distributorthe distributor of those funds, allowed certain preferred customers to engage in short-term or excessive trading and never disclosed this fact to other investors. During this period, Columbia Distributor secretly entered into arrangements with at least nine companies and individuals, allowing them to engage in frequent short-term trading in at least seven Columbia Funds, including international funds and a fund aimed at young investors.
Columbia Management Advisors knew and approved of all but one of the short-term trading arrangements, and it allowed the arrangements to continue despite knowing such trading could be detrimental to long-term shareholders in the funds. These arrangements increased the advisory fees earned by Columbia Advisors and the compensation paid to Columbia Distributor. Further, in connection with certain of the arrangements, Columbia Distributor insisted upon receiving so-called "sticky assets" - long-term investments that were to remain in place in return for allowing the investors to actively trade in the funds.
In some cases, Columbia Distributor required investors who wanted to engage in frequent short-term trading in certain Columbia Funds to place long-term assets in other Columbia Funds. Such arrangements benefited Columbia Advisors and Columbia Distributor, but posed risks for investors in the funds in which short-term trading was allowed. Throughout the relevant period, the Defendants never disclosed to the long-term shareholders of the Columbia Funds or to the independent trustees of the Columbia Funds the special arrangements they made with these short-term or excessive traders and the potential harm these arrangements posed to the relevant Columbia Funds.
The Defendants also did not disclose the resulting conflicts of interest these arrangements created between Columbia Advisors and Vintage Leather Sofa Company clients. Nor did the Defendants disclose the conflicts of interest created by the disparate treatment of investors in the same fund, which was a result of these arrangements i.
These non-disclosures constituted material omissions of fact. Further, many of these arrangements and the trades made pursuant to them were directly contrary to certain representations that Columbia Advisors made to investors that the funds did not permit market timing or other short-term or excessive trading because of its harmful effect on the funds. These materially misleading statements and omissions were contained in fund prospectuses that both Columbia Advisors and Columbia Distributor issued to clients and potential clients.
Columbia Advisors also had a fiduciary duty to act at all times in the best interests of investors in the Columbia Funds.
It further had an affirmative obligation to act with reasonable care to avoid misleading investors. Zee Music Company placing its own interest in generating fees from short-term or excessive traders above the interests of long-term shareholders to whom this trading posed a risk of harm, and by failing to disclose these arrangements and the conflicts of interest they created, Columbia Advisors, aided and abetted by Columbia Distributor, breached its fiduciary duty to shareholders in the funds where the short-term or excessive trading took place.
Unless enjoined, the Defendants will continue to engage in acts, practices, and courses of business as set forth in this Complaint or in acts, practices, and courses of business of similar object and purpose. Accordingly, the Commission seeks the following against each Defendant: i entry of a permanent injunction prohibiting it from further violations of the relevant provisions of the federal securities laws; ii restitution to investors in the relevant Columbia Funds; iii disgorgement of all ill-gotten gains, plus prejudgment interest thereon; and iv imposition of civil monetary penalties.
In addition, the Commission requests v an order permanently enjoining Columbia Advisors from serving or acting with respect to any investment company as an officer, director, member of any advisory board, investment advisor, depositor, or principal underwriter; and vi such other equitable relief as the Court deems just and appropriate.
Additionally, the acts and practices alleged herein occurred primarily within the District of Massachusetts. The Commission brings this action pursuant to the authority conferred upon it by Section 20 of the Securities Act [15 U. Columbia Management Advisors, Inc. Columbia Advisors, which has offices in Boston, has been an investment adviser registered with the Commission since In connection with its purchase of Liberty Financial Group "Liberty" in NovemberFleet acquired various Liberty fund groups and investment advisers.
Columbia Advisors is presently the sponsor of approximately Columbia Funds and Us Agent For Foreign Company responsible for all representations made in the prospectuses for those funds. Columbia Funds Distributor, Inc. AColumbia Distributora Massachusetts corporation with offices in Boston, is a wholly-owned subsidiary of Columbia Management and indirect subsidiary of Fleet.
Columbia Distributor has been a broker-dealer registered with the Commission since It Residential Framing Company as the principal underwriter and distributor for the Columbia Funds and, in this role, disseminates the prospectuses for the Columbia Funds.
Columbia Fund Services, Inc. A Columbia Servicesa subsidiary of Columbia Management, is the transfer agent for the Columbia Funds, with responsibility for identifying market timing activity in the funds.
Market timing includes a frequent buying and selling of shares of the same mutual fund or b buying or selling mutual fund shares in order to exploit inefficiencies in mutual fund pricing. Market timing, while not illegal Cp Feed Company se, can harm other mutual fund shareholders because it can dilute the value of their shares, if the market timer is exploiting pricing inefficiencies, or disrupt the management of the mutual fund's investment portfolio and cause the targeted mutual fund to incur costs borne by other shareholders to accommodate frequent buying and selling of shares by the market timer.
The Columbia Funds' Disclosures. The Columbia Funds are a group of funds currently owned by Fleet. This group includes several funds e. By Septemberthe names of the various fund groups Fleet owned had been changed so that all were uniformly referred to by the name Columbia. From throughthe prospectuses for various of the Columbia Funds contained disclosures stating that shareholders would be limited in the number of exchanges they could make during a given period.
For example, the prospectuses for the Acorn Fund Group represented that investors would generally be permitted to make only up to four round trip exchanges per year, defining a round trip as an Quickbooks 2017 Sample Company out of one fund into another fund and then back again.
Further, starting in Maycertain of the Columbia Funds belonging to the Acorn Fund Group began representing in their respective prospectuses that "[t]he Acorn funds do not permit market-timing and have adopted policies to discourage this practice. In the fall ofa number of the Columbia Funds belonging to Liberty at the time began including in their respective prospectuses the following disclosure, which expressly stated that short-term or excessive trading was prohibited the "Strict Prohibition" :.
The Fund does not permit short-term or excessive trading in its shares. Excessive purchases, redemptions or exchanges of Fund shares disrupt portfolio management and increase Fund expenses. The funds into which you would like to exchange may also reject your request. By the spring ofthe rest of the Columbia Funds belonging to Liberty began including the Strict Prohibition in their prospectuses.
Lake Edge Seafood Company Monona Wi the Columbia Management Company ofColumbia Advisors amended the Strict Prohibition language in certain of the prospectuses to make clear that other funds distributed by Columbia Distributor similarly reserved the right to reject trade requests from market timers or investors with a pattern of short-term or excessive trading.
During the period from at least and continuing through summerColumbia Distributor managers entered into at least nine arrangements with investment advisers, hedge funds, brokers and individual investors allowing them to engage in frequent trading in particular mutual funds. Further, much of this trading was directly contrary to the prospectus disclosure for the funds in which it occurred.
From April through OctoberIlytat, L. A substantial number of these trades were made pursuant to an arrangement with Columbia Distributor and approved by Columbia Advisors, which allowed Knoxville Cleaning Company to engage in frequent and short-term trading in the Newport Tiger Fund the "Newport Tiger Fund"an Asian equity fund.
Through and earlythe prospectus for the Newport Tiger Fund noted that "[s]hort-term 'market timers' who engage in frequent purchases and redemptions can disrupt the Fund's investment program and create additional transaction costs that are borne by all shareholders. Notwithstanding the language in the prospectus, Columbia Distributor, with the approval of the Newport Tiger Fund's portfolio manager, allowed Ilytat, which it and Columbia Services identified as a market timer, to enter into a "sticky-assets" arrangement.
Notwithstanding these concerns, Ilytat was allowed to continue trading in the Newport Tiger Fund until September This activity included over 30 round trips during the period from May through Septemberwhen the fund's Bas Cricket Company Wikipedia contained the Strict Prohibition representation.
Ilytat also traded extensively in the Acorn International Fund during the period from September through October From September through Septemberthe prospectus for the fund stated that investors would be permitted to make only up to four round trips per year. Further, as of Maythe prospectus for the fund stated that market timing would not be permitted in the fund. In addition, by the end of Septemberthe Strict Prohibition representation was included in the fund's prospectus.
Despite these representations, from September through OctoberIlytat made 73 round trips in the Acorn International Fund, including 27 round trips in and 18 round trips in This activity included 27 round trips made after the Strict Prohibition representation had been included in Powell And Company Solicitors fund's prospectus.
Ilytat also traded extensively in the Acorn International Select Fund during the period from July through June Throughout this period, the prospectus for the Acorn International Select Fund included the Strict Prohibition representation. This trading activity was contrary to the representation in the prospectus for the fund that traders would be restricted to four trades per year and further, that market timing would not be permitted.
Neither Columbia Advisors nor Columbia Distributor disclosed to the investors or to the independent trustees of the Columbia Funds the arrangement with Ilytat Oppo Mobile Company Wikipedia Ilytat's trading in the Columbia Funds.
During the period from January through Aprilnotwithstanding the language in the fund's prospectus regarding the potential harm caused by short-term market timers, Ritchie made over round trips. In addition, from May through SeptemberRitchie made over trades in the Newport Tiger Fund even though the prospectus included the Strict Prohibition representation during this period.
InColumbia Distributor discussed an arrangement with Ritchie under which Ritchie would be allowed to make up to 12 round trips per year in the Newport Tiger Fund. In earlyRitchie began negotiating with Columbia Distributor an arrangement to actively trade the Growth Stock Fund, a large cap fund, which by then included the Strict Prohibition disclosure in its prospectus.
Overall, pursuant to its arrangements with Columbia Distributor and contrary to Columbia Advisors' Strict Prohibition representation in the fund's prospectus, Ritchie made approximately 18 round trips in the Growth Stock Fund from June through September Neither Columbia Advisors nor Columbia Distributor disclosed to the investors or to the independent trustees of the Columbia Funds the arrangement with Ritchie or Ritchie's trading in the Columbia Funds.
During late and earlyentities controlled by Edward Stern "Stern" negotiated trading arrangements with Columbia Distributor through two intermediaries. Despite the fact that Columbia Advisors had included the Strict Prohibition disclosure in the prospectus for each of these three funds, the arrangement permitted Stern entities to make three round trips per month in each fund.
Stern withdrew from the arrangement only a couple of weeks after making the investment. Despite the fact that Columbia Advisors had included the Strict Prohibition disclosure in the prospectus for the High Yield Fund, Stern was permitted to make one round trip each month in the fund.
The portfolio manager for the High Yield Fund approved the arrangement. Neither Columbia Advisors nor Columbia Distributor disclosed to the investors or to the independent trustees of the Columbia Funds the arrangement with Stern or Stern's trading in the Columbia Funds.
Neither Columbia Advisors nor Columbia Distributor disclosed to the investors or to the independent trustees of the Columbia Funds the arrangement with Calugar or Calugar's trading in the Columbia Funds. In lateColumbia Distributor, with the approval of its President, entered into a "sticky-asset" arrangement with Sal Giacalone "Giacalone".
Notwithstanding the supposed terms of his arrangement and the language in the prospectus discussing the potential harm caused by short-term market timers, Giacalone made a total of 43 round trips in the Newport Tiger Fund during six months of trading from November through April Neither Columbia Advisors nor Columbia Distributor disclosed to the investors or to the independent trustees of the Columbia Funds the arrangement with Giacalone or Giacalone's trading in the Columbia Funds.
Elron Instrument Company Pvt Ltd lateColumbia Distributor entered into an arrangement with D.
During the first five months ofLoeser made approximately 20 round trips in the Growth Stock Fund and another 20 round trips in the Young Investor Fund. Neither Columbia Advisors nor Columbia Distributor disclosed to the investors or to the independent trustees of the Columbia Funds the arrangement with Loeser or Loeser's trading in the Columbia Funds. Beginning inSignalert, a registered investment adviser, began trading in Columbia Funds under arrangements with Columbia Distributor.
Columbia Distributor senior management subsequently pushed to increase the size of Signalert's investments. In return, Columbia Distributor allowed Signalert to make up to 12 round trips per year in each fund. During the first 11 months ofnotwithstanding the supposed terms of the arrangement, Signalert made over 60 round trips in the two funds, one every one to two weeks.
Despite the fact that the Stein Roe Income Fund and the Acorn Fund both included the Strict Prohibition representation in their prospectuses, Signalert made eight round trips in the Stein Roe Income Fund, all in the month of Novemberand at least 15 round trips in the Acorn Fund during the period from March through February Neither Columbia Advisors nor Columbia Distributor disclosed to the investors or to the independent trustees of the Columbia Funds the arrangement with Signalert or Signalert's trading in the Columbia Funds.
The arrangement was approved by the portfolio manager for the Tax Exempt Fund. Notwithstanding this representation, Waldbaum made 10 round trips in the Tax Exempt fund from November through October Neither Columbia Advisors nor Columbia Distributor disclosed to the investors or to the independent trustees of the Columbia Funds the arrangement with Waldbaum or Waldbaum's trading in the Columbia Funds. By earlyTandem Financial "Tandem"an investment adviser, entered into an arrangement with Columbia Distributor, which was approved by its Senior Vice President.
DuringTandem made approximately eleven round trips in the Tax-Exempt Fund. Despite the disclosure, Tandem made round trips during the period from April through September Neither Columbia Advisors nor Columbia Distributor disclosed to the investors and independent trustees of the Columbia Funds the arrangement with Tandem or Tandem's trading in the Columbia Funds. Further, several senior executives were aware that there was short-term or excessive trading in the Columbia Funds and aware of the concerns voiced by the portfolio managers, among others, about the potential negative impact this trading could have on the funds.
Many of the Columbia Funds' portfolio managers, a number of Columbia Distributor executives, and each of the senior executives responsible for Columbia Advisors' advisory activity during the period from toknew or recklessly disregarded that short-term or excessive trading caused potential or actual harm and disruption to the Columbia Columbia Management Company. For example:.
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