SEC Pursues Product Manager and CIO for Bond Fund Misreps
The SEC has charged the chief investment officer and a product manager with securities fraud in connection with misleading statements alleged to have been made in connection with the sale of an enhanced cash fund invested in subprime mortgages. The SEC alleges that the product manager was responsible for the fact sheets and client presentations that misrepresented the fund’s holdings, diversification, and leverage. The SEC charges that the CIO sent misleading letters to investors while overseeing redemptions by certain other clients. The SEC charges the respondents with primary violations of Sections 10 and 17 of the Exchange Act.
OUR TAKE: It has now become routine for the SEC to charge individuals in addition to their employers. Notable here is charging corporate officers/employees with primary violations rather than aiding/abetting. In general, the SEC can seek more severe penalties if it can satisfy the higher proof standards for a primary violation.