# UNITED STATES OF AMERICA

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URL: https://www.frixlaw.com/law-library/documents/agency%3Asec%3A333262388d8361c3

## Record

- **Collection:** Agency decision
- **Document type:** Agency decision

## Text

UNITED STATES OF AMERICA
Before the
SECURITIES AND EXCHANGE COMMISSION

ADMINISTRATIVE PROCEEDING
File No. 3-17614

In the Matter of
Laurence I. Balter d/b/a Oracle
Investment Research
Respondent.

I.

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PROPOSED PLAN OF
DISTRIBUTION

OVERVIEW

1.
The Division of Enforcement submits this Proposed Plan of Distribution (the
“Plan”) to the United States Securities and Exchange Commission (the “Commission”) pursuant
to Rule 1101 of the Commission’s Rules on Fair Fund and Disgorgement Plans (the
“Commission’s Rules”), 17 C.F.R. § 201.1101. This Plan provides for the distribution of a Fair
Fund (the “Fair Fund”), comprised of disgorgement, prejudgment interest, and civil money
penalties paid by Laurence I. Balter d/b/a Oracle Investment Research (the “Respondent”) in the
above-captioned matter.1
2.
As described more specifically below, the Plan seeks to compensate investors
who were harmed, by the Respondent’s conduct described in the Order, in connection with
Respondent’s multiple breaches of fiduciary duty and violations of the antifraud provisions of
the federal securities laws between January 2011 and April 2014. Based on information obtained
by the Commission staff during its investigation and the review and analysis of applicable
records, the Commission staff has reasonably concluded that it has all records necessary to
calculate each investor’s harm. As a result, the Fair Fund is not being distributed according to a
claims-made process, so procedures for making and approving claims in accordance with Rule
1101(b)(4) of the Commission’s Rules, 17 C.F.R. § 201.1101(b)(4), are not applicable.
3.
As calculated using the methodology detailed in the Plan of Allocation (attached
as Exhibit A), investors will be compensated for their losses due to the misconduct of the
Respondent from January 2011 through April 2014.
1

See Order Making Findings and Imposing Remedial Sanctions and a Cease-and-Desist Order Pursuant to Section
8A of the Securities Act of 1933, Section 21C of the Securities Exchange Act of 1934, Sections 203(f) and 203(k) of
the Investment Advisers Act of 1940, and Sections 9(b) and 9(f) of the Investment Company Act of 1940, Securities
Act Rel. No. 10367 (May 26, 2017) (the “Order”).

4.
In the view of the Commission staff, this methodology constitutes a fair and
reasonable allocation of the Fair Fund.
5.
The Commission has custody of the Fair Fund and shall retain control of the
assets of the Fair Fund. The Plan is subject to approval by the Commission, and the Commission
retains jurisdiction over its implementation.
II.

BACKGROUND

6.
On May 26, 2017, the Commission issued the Order settling previously instituted
cease-and-desist proceedings against the Respondent. In the Order, the Commission found that
from January 2011 through April 2014, the Respondent, a former registered investment adviser
to the Oracle Mutual Fund (the “Oracle Fund”), (a) fraudulently allocated profitable trades to his
own accounts to the detriment of several investors’ accounts (“Cherry-Picking”); (b) falsely told
investors that they would not pay both advisory fees and management fees for the portions of
their accounts invested in the Oracle Fund (“Misrepresentation”); and (c) made trades for the
Oracle Fund that deviated from two of the Oracle Fund’s fundamental investment limitations.
7.
As a result of the conduct described in the Order, the Commission ordered the
Respondent to pay disgorgement of $489,921 plus prejudgment interest of $10,079, and a civil
penalty of $50,000, for a total of $550,000 to the Commission. Payments were to be made in
installments over a three-year period. In the Order, the Commission established a Fair Fund,
pursuant to Section 308(a) of the Sarbanes-Oxley Act of 2002, so the civil penalties paid, along
with the disgorgement and prejudgment interest paid, can be distributed to harmed investors (the
“Fair Fund”).
8.
The Respondent has paid in full. The Fair Fund has been deposited at the United
States Department of the Treasury’s Bureau of the Fiscal Service (“BFS”) for investment.
III.

DEFINITIONS
As used in this Plan, the following definitions will apply:

9.
“Administrative Costs” means any administrative costs and expenses, including
without limitation the fees and expenses of the Tax Administrator and the Fund Administrator,
tax obligations, bond premium expenses, and investment and banking costs.
10.
“Distribution Payment” means a payment from the Fair Fund to a Payee in
accordance with the terms of this Plan.
11.
“Eligible Claimant” shall mean a Preliminary Claimant, who is determined to
have suffered a Recognized Loss, pursuant to the Plan of Allocation, and who is not an Excluded
Party or an Unresponsive Preliminary Claimant.
12.

“Excluded Party” shall mean: (a) Respondent, or Respondent’s advisers, agents,
2

nominees, assigns, creditors, heirs, distributees, spouses, parents, children, or controlled entities;
(b) the Fund Administrator, its employees, and those persons assisting the Fund Administrator in
its role as the Fund Administrator; and (c) any purchaser or assignee of another Person’s right to
obtain a recovery from the Fair Fund for value; provided, however, that this provision shall not
be construed to exclude those Persons who obtained such a right by gift, inheritance or devise.
13.
“Fair Fund” means the $550,000 fund created by the Commission pursuant to
Section 308(a) of the Sarbanes-Oxley Act of 2002, for the benefit of investors harmed by
Respondent’s violations described in the Order.
14.
“Final Determination Notice” means the written notice sent by the Fund
Administrator to (a) any Preliminary Claimant who timely submitted a written dispute of their
calculated Recognized Loss notifying the Preliminary Claimant of its resolution of the dispute;
and (b) those Preliminary Claimants who have not responded to the Plan Notice as described in
paragraph 34(f) below, notifying the Preliminary Claimant that they have been deemed an
Unresponsive Preliminary Claimant. The Final Determination Notice will constitute the Fund
Administrator’s final ruling regarding the status of the claim.
15.
“Net Available Fair Fund” means the Fair Fund, plus any interest or earnings,
less Administrative Costs.
16.
“Payee” means an Eligible Claimant whose distribution amount is equal to or
greater than $10.00, as calculated in accordance with the Plan of Allocation.
17.
“Person” means natural individuals as well as legal entities such as corporations,
partnerships, or limited liability companies.
18.
“Plan Notice” means a written notice from the Fund Administrator to Preliminary
Claimants regarding the Commission’s approval of the Plan, including, as appropriate: a
statement characterizing the distribution, a link to the approved Plan posted on the Commission’s
website and instructions for requesting a copy of the Plan, specification of any information
needed from the Preliminary Claimant to prevent them from being deemed an Unresponsive
Preliminary Claimant, their preliminary Recognized Loss, a description of the tax information
reporting and other related tax matters, the procedure for the distribution as set forth in the Plan,
and the name and contact information for the Fund Administrator in order to provide any
requested information or to contact with questions regarding the distribution.
19.
“Plan of Allocation” means the methodology by which a Preliminary Claimant’s
Recognized Loss is calculated. The Plan of Allocation is attached as Exhibit A.
20.
“Preliminary Claimant” means those Persons, or their lawful successors,
identified by the Fund Administrator based on its review and analysis of applicable records
obtained by the Commission staff during its investigation, who may have suffered a loss as a
result of the Respondent’s (a) Cherry-Picking; and/or (b) Misrepresentations described in the
Order between January 2011 and April 2014.

3

21.
“Recognized Loss” means the total amount of loss calculated for a Preliminary
Claimant for both the Cherry-Picking and Misrepresentations, in accordance with the Plan of
Allocation.
22.
“Unresponsive Preliminary Claimant” means a Preliminary Claimant whose
address the Fund Administrator has not been able to verify and/or who does not timely respond
to the Fund Administrator’s attempts to obtain information, including any information sought in
the Plan Notice. Unresponsive Preliminary Claimants will not be eligible for a distribution under
the Plan.
IV.

TAX COMPLIANCE

23.
On August 21, 2017, the Commission appointed Miller Kaplan Arase LLP as the
tax administrator (the “Tax Administrator”) for the Fair Fund to handle the tax obligations of the
Fair Fund.2 The Tax Administrator will be compensated for reasonable fees and expenses from
the Fair Fund in accordance with its Revised 2017-2018 Engagement Letter Agreement with the
Commission.3
24.
The Fair Fund constitutes a Qualified Settlement Fund (“QSF”) under Section
468B(g) of the Internal Revenue Code of 1986, as amended, 26 U.S.C. § 468B(g), and related
regulations, 26 C.F.R. §§ 1.468B-1 through 1.468B-5. The Tax Administrator is the
administrator of such QSF, for purposes of Treas. Reg. § 1.468B-2(k)(3)(I) and shall satisfy the
tax-related administrative requirements imposed by Treas. Reg. § 1.468B-2, including, but not
limited to:
(a)

Obtaining a taxpayer identification number;

(b)

Requesting funds necessary for the timely payment of all applicable taxes,
the payment of taxes for which the Tax Administrator has received funds,
and the filing of applicable returns; and

(c)

Fulfilling any information reporting or withholding requirements imposed
on distributions from the Fair Fund.

25.
All tax obligations will be paid from the Fair Fund, subject to the review and
approval of Commission staff.
V.

FUND ADMINISTRATOR

26. On April 15, 2021, the Commission appointed DST Asset Manager Solutions,
Inc., an SS&C Company, as the fund administrator for the Fair Fund (the “Fund
Administrator”), and the Fund Administrator has obtained a bond in the amount of $550,000, as

2

See Order Appointing Tax Administrator, Exchange Rel. No. 34-81445 (Aug. 21, 2017).
See Omnibus Order Directing the Appointment of Tax Administrator in Administrative Proceedings that Establish
Distribution Funds, Exchange Act Rel. No. 81057 (June 30, 2017).
3

4

ordered.4 Pursuant to Rule 1105(a) of the Commission’s Rules, 17 C.F.R. § 201.1105(a), the
Fund Administrator may be removed at any time by order of the Commission or hearing officer.
27. The Fund Administrator will be responsible for administering the Fair Fund in
accordance with the Plan. This will include, among other things, taking reasonable steps to
obtain accurate mailing information for Preliminary Claimants; establishing a website and
staffing a call center to address inquiries regarding the Plan; preparing accountings; cooperating
with the tax administrator appointed by the Commission to satisfy any tax liabilities and to
ensure compliance with income tax reporting requirements, including but not limited to Foreign
Act Tax Compliance Act (FATCA); disbursing the Fair Fund in accordance with this Plan, as
ordered by the Commission; and researching and reconciling errors and reissuing payments,
when possible.
28. To carry out the purposes of this Plan, the Fund Administrator is authorized to
make and implement immaterial changes to the Plan upon agreement of the Commission staff.
If a change is deemed to be material by the Commission staff, Commission approval is required
prior to implementation by amending the Plan.
29. The Fund Administrator may extend any procedural deadline contained in the
Plan for good cause shown, if agreed upon by the Commission staff.
30. The Fund Administrator, and/or each of its designees, agents and assistants, shall
be entitled to rely on all outstanding rules of law; and any orders issued by the Commission, the
Secretary or Director of Enforcement by delegated authority or an Administrative Law Judge;
and/or any investor information provided by Commission staff.
31. The Fund Administrator is authorized to enter into agreements with third parties
as may be appropriate or necessary in the administration of the Fair Fund, provided such thirdparties are not excluded pursuant to other provisions of this Plan. In connection with such
agreements, the third-parties shall be deemed to be agents of the Fund Administrator under this
Plan.
32. The Fund Administrator will be entitled to payment from the Fair Fund of
reasonable fees and expenses, including the bond premium, incurred in the performance of its
duties (including any such fees and expenses incurred by agents, consultants or third-parties
retained by the Fund Administrator in furtherance of its duties).
VI.

PLAN PROCEDURES
Specification of Preliminary Claimants

33. Using information obtained during its investigation, the Commission has
identified the Preliminary Claimants. Preliminary Claimants are limited to only those Persons

4

See Order Appointing Fund Administrator and Setting Bond Amount, Exchange Act Rel. No. 91570 (Apr. 15,
2021).

5

who may have suffered a loss due to the misconduct of the Respondent’s (a) Cherry-Picking;
and/or (b) Misrepresentations from January 2011 through April 2014.
Procedures for Locating and Notifying Preliminary Claimants
34.
Within thirty (30) calendar days of Commission approval of the Plan, the Fund
Administrator will:
(a)

Establish and maintain a website devoted solely to the Fair Fund. The Fair
Fund’s website, located at www.balteroracledistribution.com, will make
available a copy of the approved Plan, include a copy of the Plan Notice,
and related materials in downloadable form, and such other information
that the Fund Administrator believes will be beneficial to Preliminary
Claimants.

(b)

Establish and maintain a toll-free telephone number for Preliminary
Claimants to call and speak to a live representative of the Fund
Administrator during its regular business hours or, outside of such hours,
to hear pre-recorded information about the Fair Fund.

(c)

The Fund Administrator will also establish and maintain a traditional
mailing address and an email address which will be listed on all
correspondence from the Fund Administrator to Preliminary Claimants as
well as on the Fair Fund’s website.

(d)

Establish and maintain a case specific database of all Preliminary
Claimants based upon information provided to and obtained by the Fund
Administrator, including the last known physical and email addresses.

(e)

Run a National Change of Address search to retrieve updated addresses
for all records in the database, thereby ensuring the mailing information
for Preliminary Claimants is up-to-date.

(f)

Send the Plan Notice to each Preliminary Claimant’s last known email
address (if known) and/or mailing address.

35.
The Commission staff retains the right to review and approve any communication
with investors, including any material posted on the Fair Fund’s website, the Plan Notice, and
any scripts used in connection with communications with investors.
Procedures to Request Plan Notice
36.
Any Person who does not receive a Plan Notice, as described in paragraph 34(f),
but who is aware of this Plan (e.g., through other Preliminary Claimants or on www.sec.gov) and
believes they should be included as a Preliminary Claimant should send a request for the Plan
Notice to the Fund Administrator within thirty (30) days of approval of the Plan to establish that
6

they should be considered a Preliminary Claimant. The Fund Administrator will send the Person
a Plan Notice within fourteen (14) days of receipt of the Person’s request, if the Fund
Administrator determines that the Person should have received a Plan Notice, as provided in
paragraph 34(f).
Undeliverable Mail
37.
If any Plan Notice mailing is returned as undeliverable, the Fund Administrator
will make the best practicable efforts to ascertain a Preliminary Claimant’s correct address. If
another address is obtained, the Fund Administrator will then resend the Plan Notice to the
Preliminary Claimant’s new address within thirty (30) days of receipt of the returned mail. If the
mailing is returned again, and the Fund Administrator, despite best practicable efforts, is unable
to find a Preliminary Claimant’s correct address, the Fund Administrator, in its discretion, may
deem such Preliminary Claimant as an Unresponsive Preliminary Claimant.
38.
Any Preliminary Claimant who relocates or otherwise changes contact
information after receipt of the Plan Notice must promptly communicate any change in address
or contact information to the Fund Administrator.
Dispute Process
39.
Disputes will be limited to calculation of the Recognized Loss. Within thirty (30)
days of receipt of the Plan Notice, the Fund Administrator must receive a written communication
detailing the dispute along with any supporting documentation. The Fund Administrator will
investigate the dispute, and such investigation will include a review of the written dispute as well
as any supporting documentation.
Failure to Respond to Plan Notice
40.
If a Preliminary Claimant fails to respond within thirty (30) days from the mailing
of the Plan Notice, the Fund Administrator will make no fewer than two (2) attempts to contact
the Preliminary Claimants by telephone or email. The second attempt will in no event take place
more than forty-five (45) days from the mailing of the Plan Notice. If a Preliminary Claimant
fails to respond to the Fund Administrator’s contact attempts as described in this paragraph, the
Fund Administrator, in its discretion, may deem such Preliminary Claimant an Unresponsive
Preliminary Claimant.
Mailing of Final Determination Notices
41.
Within sixty (60) days of the initial mailing of the Plan Notices, the Fund
Administrator will send a Final Determination Notice to: (a) any Preliminary Claimant who
timely submitted a written dispute as described in paragraph 39 above, notifying the
Preliminary Claimant of its resolution of the dispute; and (b) those Preliminary Claimants
who have not responded to the Plan Notice as described in paragraph 40 above, except to
those whose Plan Notice was returned as “undeliverable,” notifying the Preliminary Claimant
that they have been deemed an Unresponsive Preliminary Claimant.
7

Distribution Methodology
42.
The Fund Administrator will calculate each Preliminary Claimant’s
Recognized Loss in accordance with the Plan of Allocation. All Preliminary Claimants who
are determined to have a Recognized Loss, and who are not deemed an Excluded Party or an
Unresponsive Preliminary Claimant will be deemed an Eligible Claimant. All Eligible
Claimants who are determined to receive a Distribution Payment will be deemed a Payee.
Establishment of a Reserve
43.
Before determining the amount of funds available for distribution and calculating
each Payee’s Distribution Payment, the Fund Administrator, in conjunction with the Tax
Administrator, will establish a reserve to pay future Administrative Costs and to accommodate
any unexpected expenditures (the “Reserve”).
44.
After all Distribution Payments are made and Administrative Costs are paid, any
remaining amounts in the Reserve will become part of the Residual described in paragraph 63
below.
Preparation of the Payment File
45.
Within one hundred eighty (180) days of Commission approval of the Plan, the
Fund Administrator will compile and send to the Commission staff the Payee information,
including the name, address, calculated Recognized Loss, and the amount of the Distribution
Payment for all Payees (the “Payee List”). The Fund Administrator will also provide a
Reasonable Assurances Letter to the Commission staff, representing that the Payee List: (a) was
compiled in accordance with the approved Plan; (b) is accurate as to Payees’ names, addresses,
Recognized Losses and amounts of their Distribution Payment; (c) includes the number of
Payees compensated; (d) the pro-rata applied, if any; (e) the percentage of Recognized Loss
being compensated by the Fair Fund; (f) the total amount being distributed; and (g) provides all
information necessary to make a payment to each Payee.
The Escrow Account
46.
Prior to the disbursement of the Net Available Fair Fund, the Fund Administrator
will establish an escrow account (the “Escrow Account”) with a United States commercial bank
that is a well-capitalized financial institution as defined by the Federal Reserve Act, Subpart D,
12 C.F.R. 208.43 and that is not unacceptable to the Commission staff (the “Bank”), pursuant to
an escrow agreement (the “Escrow Agreement”) to be provided by Commission staff.
47.
The Fund Administrator, pursuant to the Escrow Agreement, shall also establish
with the Bank a separate deposit account (e.g. controlled distribution account, managed
distribution account, linked checking and investment account) (the “Distribution Account”),
insured by the Federal Deposit Insurance Corporation (“FDIC”) up to the guaranteed FDIC pass
through limit. The Distribution Account shall be linked with the Escrow Account and shall be
8

named, and records maintained, in accordance with the Escrow Agreement.
48.
During the term of the Escrow Agreement, the portions of the Fair Fund
transferred to the Escrow Account (the “Escrow Property”), if invested, shall be invested and
reinvested in short-term U.S. Treasury securities backed by the full faith and credit of the United
States Government or an agency thereof. The investment shall be, of a type and term necessary
to meet the cash liquidity requirements for payments to Payees and Administrative Costs,
including investment or reinvestment in a bank account insured by the FDIC up to the
guaranteed FDIC limit, or in money market mutual funds registered under the Investment
Company Act of 1940 that invest 100% of their assets in direct obligations of the United States
Government.
49.
The Fund Administrator shall provide duplicate original bank and/or investment
statements on any accounts established by the Fund Administrator to the Tax Administrator on a
monthly basis and shall assist the Tax Administrator in obtaining mid-cycle statements, as
necessary.
50.
The Fund Administrator, in consultation with the Commission staff, shall work
with the Bank on an ongoing basis to deposit or invest funds in the Escrow and Distribution
Accounts so as to result in the maximum reasonable net return, taking into account the safety of
such deposits or investments and tax implications; and to determine an allocation of funds
between the Escrow and Distribution Account.
51.
All interest, dividends, and/or income earned by the Escrow Property will accrue
for the benefit of the Escrow Property. All Administrative Costs associated with the Escrow and
Distribution Accounts will be the responsibility of the Fund Administrator, who may be
reimbursed for said costs as provided in this Plan. No such Administrative Costs may be paid to
the Bank, its agents, and/or its affiliates from the Escrow Property.
Distribution of the Fair Fund
52.
Upon the Commission’s staff’s receipt, review, and acceptance of the Payee List
and Reasonable Assurances Letter from the Fund Administrator, the Commission staff will seek
an Order from the Commission pursuant to Rule 1101(b)(6) of the Commission’s Rules, 17
C.F.R. § 210.1101(b)(6), to disburse funds to the Bank in accordance with the Payee List for
distribution by the Fund Administrator in accordance with the Plan. All disbursements will be
made pursuant to a Commission Order.
53.
Upon issuance of an Order to disburse, the Commission staff will direct the
transfer of the amount of funds referred to on the Payee List to the Bank. The Fund
Administrator will then use its best efforts to commence mailing Distribution Payment checks
and/or effect wire transfers within thirty (30) days of the release of the funds into the Escrow
Account. All efforts will be coordinated to limit the time between the Escrow Account’s receipt
of the funds and the issuance of Distribution Payments.

9

54.
All checks will be issued by the Fund Administrator from the Distribution
Account. All checks will bear a stale date of ninety (90) days from the date of issuance. Checks
that are not negotiated by the stale date will be voided, and the Bank will be instructed to stop
payment on those checks. A Payee’s claim will be extinguished if he, she, or it fails to negotiate
his, her or its check by the stale date, and the funds will remain in the Fair Fund, except as
provided in paragraph 58.
55.
All Distribution Payments will be preceded or accompanied by a communication
that includes, as appropriate: (a) a statement characterizing the distribution; (b) a statement that
the tax treatment of the distribution is the responsibility of each Payee and that the Payee should
consult his, her or its tax advisor for advice regarding the tax treatment of the distribution; (c) a
statement that checks will be void and cannot be reissued after ninety (90) days from the date the
original check was issued; and (d) contact information for the Fund Administrator for questions
regarding the Distribution Payment. The letter or other mailings to Payees characterizing a
Distribution Payment will be submitted to the Tax Administrator and Commission staff for
review and approval.
56.
All Distribution Payments, either on their face or in the accompanying mailing,
will clearly indicate that the money is being distributed from the Fair Fund established by the
Commission to compensate investors for harm as a result of securities law violations.
Post Distribution; Handling of Returned or Uncashed Checks; and Reissues
57.
The Fund Administrator shall use its best efforts to make use of commercially
available resources and other reasonably appropriate means to locate all Payees whose checks
are returned to the Fund Administrator as “undeliverable.” If new address information becomes
available, the Fund Administrator will repackage the distribution check and send it to the new
address. If new address information is not available after a diligent search (and in no event no
later than ninety (90) days after the initial mailing of the original check) or if the distribution
check is returned again, the check shall be voided and the Fund Administrator shall instruct the
issuing financial institution to stop payment on such check. If the Fund Administrator is unable
to find a Payee’s correct address, the Fund Administrator, in its discretion, may remove such
Payee from the distribution and the allocated Distribution Payment will remain in the Fair Fund
for distribution, if feasible, to the remaining Payees.
58.
The Fund Administrator will reissue checks to Payees upon the receipt of a valid,
written request from the Payee prior to the initial stale date. In cases where a Payee is unable to
endorse a Distribution Payment check as written (e.g., name changes, IRA custodian changes, or
recipient is deceased) and the Payee or a lawful representative requests the reissuance of a
Distribution Payment check in a different name, the Fund Administrator will request, and must
receive, documentation to support the requested change. The Fund Administrator will review the
documentation to determine the authenticity and propriety of the change request. If, in the
discretion of the Fund Administrator, such change request is properly documented, the Fund
Administrator will issue an appropriately redrawn Distribution Payment to the requesting party.
Reissued checks will be void at the later of ninety (90) days from the date of the reissuance, and
in no event will a check be reissued after ninety (90) days from the date of the original issuance
10

without the approval of Commission staff.
59.
The Fund Administrator will work with the Bank and maintain information about
uncashed checks, any returned items due to non-delivery, insufficient addresses, and/or other
deficiencies. The Fund Administrator is responsible for researching and reconciling errors and
reissuing payments when possible. The Fund Administrator is also responsible for accounting
for all payments. The amount of all uncashed payments will continue to be held in the Fair
Fund.
60.
The Fund Administrator will make its best efforts to contact Payees to follow-up
on the status of uncashed checks over $100 (other than those returned as “undeliverable”) and
take appropriate action to follow-up on the status of uncashed checks at the request of
Commission staff. The Fund Administrator may reissue such checks, subject to the time limits
detailed herein.
Receipt of Additional Funds
61.
Should any additional funds be received pursuant to Commission or Court order,
agreement, or otherwise, prior to the Commission’s termination of the Fair Fund, such funds will
be added to the Fair Fund and distributed, if feasible, in accordance with the Plan, pursuant to the
Commission’s Rules.
Disposition of Undistributed Funds
62.
If funds remain following the initial distribution and payment of all
Administrative Costs, the Fund Administrator, in consultation with the Commission staff, may
seek subsequent distribution(s) of any available remaining funds, if feasible, pursuant to the
Commission’s Rules. All subsequent distributions shall be made in a manner that is consistent
with this Plan.
63.
A residual within the Fair Fund will be established for any amounts remaining
after the final disbursement to Payees from the Fair Fund and the payment of all Administrative
Costs (the “Residual”). The Residual may include, among other things, the remaining funds in
the Reserve, distribution checks that have not been cashed, funds from checks that were not
delivered or from funds returned to the Commission, tax refunds for overpayment or for waiver
of IRS penalties.
64.
All funds remaining in the Residual that are infeasible to distribute to investors
will be returned to the Commission and transferred to the U.S. Treasury after the final
accounting is approved by the Commission. Returning such money to the Respondent would be
inconsistent with the equitable principle that no person should profit from his wrongdoing.
Therefore, in these circumstances distributing disgorged funds to the U.S. Treasury is the most
equitable alternative.

11

Administrative Costs
65.
All Administrative Costs will be paid from the Fair Fund, in accordance with the
Commission’s Rules.
Accountings
66.
Pursuant to Rule 1105(f) of the Commission’s Rules, once funds have been
transferred from the BFS to the Bank, the Fund Administrator will file an accounting with the
Commission during the first ten (10) days of each calendar quarter on a standardized accounting
form provided by the Commission staff. The Fund Administrator will file an accounting of all
monies earned or received and all monies spent in connection with the administration of the Plan.
67.
Upon completion of all distributions to Payees pursuant to the procedures
described above, the Fund Administrator shall arrange for the payment of all Administrative
Costs, transfer all remaining funds to the Commission, and submit a final accounting for
approval by the Commission on a standardized form provided by the Commission staff. The
Fund Administrator will also submit a report to the Commission staff containing the final
distribution statistics regarding distributions to individuals and entities, and such other
information requested by the Commission staff.
Wind-down and Document Retention
68.
The Fund Administrator will shut down the website, P.O. Box and customer
service telephone line(s) established specifically for the administration of the Fair Fund six (6)
months after the transfer of any remaining funds to the Commission, or at such earlier time as the
Fund Administrator determines with the concurrence of the Commission staff.
69.
The Fund Administrator will retain all materials submitted by Payees in either
paper or electronic form for a period of six (6) years from the date of approval of a final fund
accounting. Materials maintained in electronic form must be accessible and readable for the
duration of retention. Pursuant to the Commission staff's direction, the Fund Administrator will
either turn over to the Commission or destroy all materials, including documents in any media,
upon expiration of this period.
Termination of the Fair Fund
70.
The Fair Fund will be eligible for termination and the Fund Administrator will be
eligible for discharge after all of the following have occurred (a) a final accounting, in a standard
accounting format provided by the Commission staff, has been submitted by the Fund
Administrator and approved by the Commission; (b) all Administrative Costs have been paid;
and (c) any amount remaining in the Fair Fund has been returned to the Commission for transfer
to U.S. Treasury. Once the Commission has approved the final accounting, the Commission
staff will seek an order from the Commission authorizing: (a) the transfer of any Residual
remaining in the Fair Fund that is infeasible to return to investors, and any amounts returned to it
in the future that are infeasible to return to investors, to the U.S. Treasury, subject to Section
12

21F(g)(3) of the Exchange Act; (b) discharge of the Fund Administrator; (c) cancellation of the
Fund Administrator’s bond; and (d) termination of the Fair Fund.
VII.

NOTICE OF PROPOSED PLAN AND OPPORTUNITY FOR COMMENT

71.
The Notice of the Proposed Plan of Distribution and Opportunity for Comment
(the “Notice”) shall be published on the Commission’s website
http://www.sec.gov/litigation/fairfundlist.htm. Any Person wishing to comment on the Plan
must do so in writing by submitting their comments within thirty (30) days of the date of the
Notice (a) to the Office of the Secretary, United States Securities and Exchange Commission,
100 F Street, N.E., Washington, D.C. 20549-1090; (b) by using the Commission’s Internet
comment form (www.sec.gov/litigation/admin.shtml); or (c) by sending an e-mail to rulecomments@sec.gov. Comments submitted by e-mail or via the Commission’s website should
include “Administrative Proceeding File No. 3-17614 in the subject line. Comments received
will be publicly available. Persons should only submit comments that they wish to make
publicly available.

13

Exhibit A
Plan of Allocation
This Plan of Allocation is designed to compensate investors based on their losses
between January 2011 and April 2014 (the “Relevant Period”) due to the Respondent’s (a)
cherry-picking scheme (“Cherry-Picking”); and/or (b) misrepresentation of management fees
(“Misrepresentations”). Based upon records obtained by the Commission during its
investigation, the Commission has identified those investors, or their lawful successors, who may
have suffered losses due to the Respondent’s Cherry-Picking and/or Misrepresentations during
the Relevant Period (the “Preliminary Claimants”). Investors who did not suffer losses due to
the Respondent’s misconduct during the Relevant Period are ineligible to recover under this
Plan.
The Fund Administrator, in collaboration with Commission staff economists using
account-level records from broker-dealers, will calculate each Preliminary Claimant’s loss from
the Cherry-Picking (“Recognized Loss from Cherry-Picking”) and/or the loss from the
Misrepresentations (“Recognized Loss from Misrepresentations”) separately, as follows:
A.

Recognized Loss from Cherry-Picking will be calculated as the sum of his, her, or
its But-For Loss minus the sum of his, her, or its First-Day Loss.
1.

But-For Loss is intended to measure the profit a trade would have earned
if the trade had earned the same average return as all of the Respondent’s
allocated trades (i.e., if the Respondent had not cherry picked profitable
trades). But-For Loss is calculated for each opening position allocated by
the Respondent to a Preliminary Claimant’s account, and is equal to the
dollar value of the opening position multiplied by -0.341976%, the
average return on all trades allocated by the Respondent during the
Relevant Period.

2.

First-Day Loss is intended to measure the loss a trade earned or sustained
as of the time the trade was allocated by the Respondent to the Preliminary
Claimant’s account. First-Day Loss calculated for each opening position
allocated by the Respondent to a Preliminary Claimant’s account as (a) the
realized loss (or profit) resulting from the purchase and sale of a share on
the same trading day, or (b) the unrealized loss (or profit) from the
purchase of a share until the time the position was allocated to the
Preliminary Claimant’s account.

If the Recognized Loss from Cherry-Picking is a negative number, reflecting an overall
gain, then the Recognized Loss from Cherry-Picking is $0.00. For example, if a Preliminary
Claimant’s But-For Losses sum to -$10 and her First-Day Losses sum to –$100, then her
Recognized Loss from Cherry-Picking is –$10 – (–$100) or $90. If a Preliminary Claimant’s
But-For Losses sum to –$120 and her First-Day Losses sum to –$100 , then her Recognized Loss

from Cherry-Picking is –$120 – (–$100) or –$20, which is considered to be $0 for purposes of
this distribution.
B.

Recognized Loss from Misrepresentations was calculated as the sum of his, her,
or its management fees paid for shares of Oracle Mutual Fund (symbol: ORGAX)
during calendar quarters (Q1 2011 to Q2 2013, inclusive), which is when the
Preliminary Claimant paid the Respondent a management fee and an advisory fee.
Recognized Loss from Misrepresentations does not include management fees that
were later refunded to the Preliminary Claimant.

The sum of a Preliminary Claimant’s Recognized Loss from Cherry-Picking and
Recognized Loss from Misrepresentations will be totaled to calculate their Recognized Loss. .
To avoid payment of a windfall, the Recognized Loss will be reduced by the amount of
any compensation for the loss that resulted from the conduct described in the Order that was
received from another source (e.g., class action settlement), to the extent known by the Fund
Administrator.
Any Preliminary Claimant who suffered a Recognized Loss pursuant to this Plan of
Allocation, and who is not an Excluded Party or deemed an Unresponsive Preliminary Claimant,
as defined in the Plan, will be deemed an Eligible Claimant.
Additional Provisions
Allocation of Funds: The total Recognized Losses of all Eligible Claimants exceeds the
Net Available Fair Fund, as defined in the Plan, therefore, the distribution will proceed in a pro
rata fashion and each Eligible Claimant’s distribution amount will equal his, her, or its “Pro
Rata Share” of the Net Available Fair Fund. All distribution amounts will be subject to the
“Minimum Distribution Amount.”
Pro Rata Share: A Pro Rata Share computation is intended to measure Eligible
Claimants’ Recognized Losses against one another. The Fund Administrator shall determine
each Eligible Claimant’s Pro Rata Share as the ratio of his, her, or its Recognized Loss to the
sum of Recognized Losses of all Eligible Claimants.
Minimum Distribution Amount: The Minimum Distribution Amount will be $10.00. If
an Eligible Claimant’s distribution amount is less than the Minimum Distribution Amount, he,
she, or it will be deemed ineligible to receive a Distribution Payment and his, her, or its
distribution amount will be reallocated on a pro-rata basis to Eligible Claimants whose
distribution amounts are greater than or equal to the Minimum Distribution Amount.
Payee: An Eligible Claimant whose distribution amount equals or exceeds the Minimum
Distribution Amount will be deemed a Payee and receive a Distribution Payment for his, her, or
its distribution amount. In no event will a Payee receive from the Fair Fund more than his, her,
or its Recognized Loss.

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Source: Frix Law Library, https://www.frixlaw.com/law-library/documents/agency%3Asec%3A333262388d8361c3. Public record. Not legal advice.