UNITED STATES OF AMERICA
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UNITED STATES OF AMERICA
Before the
SECURITIES AND EXCHANGE COMMISSION
ADMINISTRATIVE PROCEEDING
File No. 3-20163
:
In the Matter of
:
:
Covia Holdings Corp. and
:
Fairmount Santrol Holdings Inc.
:
now known as Bison Merger Sub I, :
LLC,
:
:
Respondents.
:
:
I.
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. As described more specifically below, the Plan provides for the distribution
of a Fair Fund (the “Fair Fund”), comprised of civil money penalties paid by Covia Holdings Corp.
(“Covia”) and Fairmount Santrol Holdings, Inc., now known as Bison Merger Sub I, LLC
(“Fairmount”) (collectively, “Respondents”) in the above-captioned matter1 to investors who were
harmed in connection with false and misleading statements by Respondents regarding the
performance of high-margin proppant products the Respondents were developing and selling,
pursuant to the Plan of Allocation (attached as Exhibit A).
2.
In the view of the Commission staff and the Fund Administrator, this methodology
constitutes a fair and reasonable allocation of the Fair Fund.
3.
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.
1
See Order Instituting Cease-and-Desist Proceedings Pursuant to Section 8A of the Securities Act of 1933 and Section
21C of the Securities Exchange Act of 1934, Making Findings, and Imposing a Cease-and-Desist Order, Securities Act
Rel. No. 10897 (Dec. 8, 2020) (the “Order”).
II.
BACKGROUND
4.
On December 8, 2020, the Commission issued the Order instituting and
simultaneously settling cease-and-desist proceedings against the Respondents. In the Order, the
Commission found that from at least October 2014 to March 2018, Fairmount, a provider of sandbased products used by oil and gas exploration and production companies for fracking, misled investors
by overstating the performance and commercial potential of high-margin proppant products it was
developing and selling. Specifically, the Commission found that Fairmount’s materially false and
misleading statements about these products appeared in offering documents in connection with its 2014
initial public offering and two subsequent offerings in 2016; in annual, quarterly, and current reports
filed with the Commission; in presentations to investors and analysts; and on the company’s website.
At the end of June 2020, Covia, and its U.S. subsidiaries, including Fairmount, filed voluntary
petitions for Chapter 11 bankruptcy reorganization.
5.
In the Order, the Commission ordered the Respondents to pay, jointly and severally, a
civil penalty of $17 million, which was deemed satisfied by a cash payment from Covia in the amount
of $1 million pursuant to Covia Holdings Corporation and its Debtor Affiliates’ confirmed Chapter 11
plan or an order of the bankruptcy court allowing such claim and authorizing such payment. The
Commission also established the Fair Fund, pursuant to Section 308(a) of Sarbanes-Oxley Act of
2002, so the penalty paid can be distributed to investors harmed by the Respondents’ conduct
described in the Order.
6.
The Respondents have 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. Other
than potential interest income from the BFS investment, the Commission does not anticipate that the
Fair Fund will receive additional funds.
III.
DEFINITIONS
As used in this Plan, the following definitions will apply:
7.
“Administrative Costs” shall mean any administrative costs and expenses,
including, without limitation, the fees and expenses of the Tax Administrator and the Fund
Administrator, tax obligations, and investment costs.
8.
“Claim Form” means the form designed by the Fund Administrator, in
consultation with the Commission staff, for the filing of claims in accordance with this Plan. The
claim form will require, at a minimum, sufficient documentation reflecting any Preliminary
Claimant’s purchases and dispositions of Securities on the Relevant Date such that eligibility
under the Plan can be determined, tax identification and other related information from the
Preliminary Claimant as determined necessary by the Fund Administrator in coordination with
the Tax Administrator, and a certification that the Preliminary Claimant is not an Excluded Party.
9.
“Claim Status Notice” means the notice sent by the Fund Administrator within
ninety (90) days of the Claims Bar Date to all Preliminary Claimants that submitted a Claim
Form. The Claim Status Notice will set forth the Fund Administrator’s determination of the
eligibility of the claim (eligible, partially or wholly deficient, or ineligible). The Claim Status
2
Notice will provide to each Preliminary Claimant whose claim is deficient, in whole or in part,
the reason(s) for the deficiency, notify the Preliminary Claimant of the opportunity to cure such
deficiency, and provide instructions regarding further necessary actions. In the event the claim is
denied, the Claim Status Notice will state the reason(s) for such denial and notify the Preliminary
Claimant of their opportunity to request reconsideration of their claim.
10.
“Claims Bar Date” means the date established in accordance with this Plan by
which a Preliminary Claimant’s Claim Form must be postmarked or submitted electronically in
order to receive consideration under the Plan. The Claims Bar Date shall be one hundred twenty
(120) days after the initial mailing of the Claims Packet. Claim Forms submitted by Preliminary
Claimants postmarked or received after the Claims Bar Date will not be accepted unless the Fund
Administrator is directed to do so by the Commission staff.
11.
“Claims Packet” means the materials relevant to submitting a claim that will be
provided to Preliminary Claimants known to the Fund Administrator or to those who request such
materials through a website or otherwise prior to the Claims Bar Date. The Claims Packet will
include, at a minimum, a copy of the Plan Notice and a Claim Form (together with instructions for
completion of the Claim Form).
12.
“Distribution Payment” means a payment from the Fair Fund to a Payee
in accordance with the terms of this Plan.
13.
“Eligible Claimant” means a Preliminary Claimant with a valid claim, who may
have suffered a loss as a result of holding shares of the Security at the close of trading on the
Relevant Date, pursuant to the Plan of Allocation, and who is not an Excluded Party.
14.
“Excluded Party” means:
(a)
The Respondents;
(b)
Present or former officers or directors of Respondents and any assigns,
creditors, heirs, distributees, spouses, parents, dependent children or
controlled entities of any of the foregoing persons or entities;
(c)
Any employee or former employee of the Respondents or any of its
affiliates who has been terminated for cause or has otherwise resigned, in
connection with the conduct described in the Order;
(d)
Any Person who, as of the Claims Bar Date, has been the subject of
criminal charges related to the conduct described in the Order or any related
Commission action;
(e)
Any firm, trust, corporation, officer, or other entity that has or had a
controlling interest in Covia or Fairmount, including any parent
company to Respondents or any parent company to an entity that
acquired Covia or Fairmount or merged with Covia or Fairmount;
3
(f)
Any firm, trust, corporation, officer, or other entity in which
Respondents have or had a controlling interest;
(g)
The Fund Administrator, its employees, and those persons assisting the
Fund Administrator in its role as the Fund Administrator; and
(h)
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.
The Claim Form will require claimants to certify that they are not an Excluded Party.
15.
“Fair Fund” means the $1,000,000 fund created by the Commission pursuant to
Section 308(a) of the Sarbanes-Oxley Act of 2002, for the benefit of investors harmed by
Respondents’ violations described in the Order.
16.
“Final Determination Notice” shall mean the written notice sent by the Fund
Administrator to any Preliminary Claimant who timely responded to the Claim Status Notice in an
effort to cure a deficiency or seek reconsideration of a denied claim. The Final Determination
Notice will constitute the Fund Administrator’s final ruling regarding the status of the claim.
17.
“Net Available Fair Fund” means the Fair Fund, plus any interest or earnings,
less Administrative Costs.
18.
“Payee” means an Eligible Claimant who is determined to receive a Distribution
Payment, as calculated in accordance with the Plan of Allocation.
19.
“Plan Notice” means a written notice from the Fund Administrator to Preliminary
Claimants informing them of the Fair Fund; the Plan and its eligibility requirements; explaining
how to submit a claim, including directions for any online claims process; and how to obtain a
copy of the approved Plan and Claim Form by request or from the Fair Fund’s website. The Plan
Notice will also be available on the Fair Fund’s website that is maintained by the Fund
Administrator.
20.
“Person” means natural individuals as well as legal entities such as corporations,
partnerships, or limited liability companies.
21.
“Plan of Allocation” means the methodology by which an Eligible Claimant’s
Recognized Loss is calculated. The Plan of Allocation is attached as Exhibit A.
22.
“Preliminary Claimant” means a Person, or their lawful successors asserting
prior to the Claims Bar Date that he, she, or it has a possible claim to recover from the Fair Fund
under this Plan.
23.
“Recognized Loss” means the amount of loss calculated for an Eligible Claimant
in accordance with the Plan of Allocation.
4
24.
“Relevant Date” means March 22, 2019.
25.
“Security” or “Securities” refers to shares of the Respondents’ common stock
listed on a U.S. exchange and registered with the Commission and traded under the symbol CVIA
on the Relevant Date.
26.
“Summary Notice” means the notice published in print or internet media that
shall include, at a minimum, a statement of the purpose of the Fair Fund and the Plan, the means
of obtaining a Claims Packet, and the Claims Bar Date. The Summary Notice will be published
once per week for three consecutive weeks and will first appear within ten (10) days of the initial
mailing of the Plan Notice.
27.
“Third-Party Filer” means a third-party, including without limitation a nominee,
custodian, or an intermediary holding in street name, who is authorized to submit and submits a
claim(s) on behalf of, one or more Preliminary Claimants. Third Party Filer does not include
assignees or purchasers of claims, which are excluded from receiving distribution payments.
IV.
TAX COMPLIANCE
28.
On February 23, 2021, 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 2019-2021 Engagement Letter Agreement with the Commission.3
29.
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
timely 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 required for
distributions from the Fair Fund.
30.
All tax obligations will be paid from the Fair Fund, subject to the review and approval
of Commission staff.
2
Exchange Act Rel. No. 91187 (Feb. 23, 2021).
See Omnibus Order Directing the Appointment of Tax Administrator in Administrative Proceedings that Establish
Distribution Funds, Exchange Act Rel. No. 85174 (Feb. 22, 2019).
3
5
V.
FUND ADMINISTRATOR
31.
The Commission appointed Analytics Consulting LLC, as the fund administrator for
the Fair Fund (the “Fund Administrator”), and the Fund Administrator has obtained a bond in the
amount of $1,000,000, as ordered.4
32.
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 identify
and contact Preliminary Claimants; obtaining accurate mailing information for Preliminary
Claimants; establishing a website and staffing a call center to address inquiries during the claims
process; developing a claims database; 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 the Foreign Account Tax Compliance Act
(FATCA); advising Preliminary Claimants of deficiencies in claims and providing an opportunity to
cure any documentary defects; taking antifraud measures, such as identifying false, ineligible and
overstated claims; making determinations under the criteria established herein as to Preliminary
Claimant eligibility; advising Preliminary Claimants of final claim determinations; disbursing the
Fair Fund in accordance with this Plan, as ordered by the Commission; and researching and
reconciling errors and reissuing payments when possible.
33.
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.
34.
The Fund Administrator may extend any procedural deadline contained in the Plan
for good cause shown, if agreed upon by the Commission staff.
35.
The Fund Administrator is authorized to enter into agreements with institutions
(“Institutions”) as may be appropriate or necessary in the administration of the Fair Fund, provided
such Institutions are not excluded pursuant to other provisions of this Plan. In connection with such
agreements, the Institutions shall be deemed to be agents of the Fund Administrator under this Plan.
36.
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.
ADMINISTRATION OF THE FAIR FUND
Identification of and Notification to Preliminary Claimants
37.
The Fund Administrator will, insofar as practicable, use its best efforts to identify
Preliminary Claimants from a review of trading records, obtaining records from registered brokerdealers and investment advisors, and seeking information from any other source available to them.
4
See Order Appointing Fund Administrator and Setting Bond Amount, Exchange Act Rel. No. 92211 (June 21, 2021).
6
The Fund Administrator may also engage a third-party firm, after consultation with and approval of
the Commission staff, to assist in identifying Preliminary Claimants to maximize the participation
rate of the Respondents’ investors in the Fair Fund.
38.
Within sixty days (60) after Commission approval of the Plan, the Fund
Administrator shall:
(a)
design and submit a Claims Packet, including the Plan Notice and the
Claim Form, to the Commission staff for review and approval;
(b)
create a mailing and claim database of all Preliminary Claimants based
upon information identified by the Fund Administrator;
(c)
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;
(d)
mail a Claims Packet to each Preliminary Claimant identified by the
Fund Administrator and to the Fund Administrator’s list of banks,
brokers, and other nominees in accordance with paragraph 43 below;
(e)
establish and maintain a website devoted solely to the Fair Fund. The
Fair Fund’s website, located at www.CoviaFairFund.com, will make
available a copy of the approved Plan; provide information regarding
the claims process and eligibility requirements for participation in the
Fair Fund in the form of frequently asked questions; include in
downloadable form, the Claim Form other related materials; and such
other information the Fund Administrator believes will be beneficial
to Preliminary Claimants;
(f)
establish and maintain a toll-free telephone number, 855-686-1990, for
Preliminary Claimants to call to speak to a live representative of the
Fund Administrator during its regular business hours or, outside of
such hours, to hear prerecorded information about the Fair Fund. The
toll-free number will be listed on all correspondence from the Fund
Administrator to Preliminary Claimants as well as on the Fair Fund’s
website; and
(g)
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.
39.
The Fund Administrator will publish the Summary Notice on the internet and/or in
print media acceptable to Commission staff once per week for three consecutive weeks starting
within ten (10) days of the initial mailing of the Plan Notice.
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40.
The Commission staff retains the right to review and approve any material posted on
the Fair Fund’s website, any material mailed, and any scripts used in connection with the
communication with Preliminary Claimants.
41.
In all materials that refer to the Claims Bar Date, the filing deadline will be clearly
identified with the calendar date, which is one hundred twenty (120) days from the date of the initial
mailing of the Claims Packet.
42.
The Fund Administrator will promptly provide a Claims Packet to any Preliminary
Claimant upon request made via mail, phone, or email prior to the Claims Bar Date.
43.
The Fund Administrator will send by mail, email, or other means, the Plan Notice to
the Fund Administrator’s list of banks, brokers, and other nominees, as well as any other institutions
identified during the outreach process, that may have records of the Security on the Relevant Date
(collectively, the “Nominees or Custodians”). The Fund Administrator will request that these
entities, to the extent that they were record holders for beneficial owners of the Security:
(a)
within fourteen (14) days of the Nominees’ or Custodians’ receipt of the
Plan Notice, notify and send the Plan Notice to the respective beneficial
owners, and, as requested, provide to the beneficial owners a Claims
Packet, so that the beneficial owners may timely file a claim. The burden
will be on the Nominees or Custodians to ensure the claims process
information, including, if requested, the Claim Packet and other relevant
materials, is properly disseminated to the beneficial owners; and/or
(b)
provide to the Fund Administrator, within fourteen (14) days of receipt of
the Plan Notice, a list of last known names and addresses for all beneficial
owners for whom/which they purchased, as the record holder, the Security
on the Relevant Date, so that the Fund Administrator can communicate
with the beneficial owners directly.
44.
At the discretion of the Fund Administrator, in consultation with the Commission
staff, a reasonable number of additional copies of the Claims Packet shall be made available to any
Nominee or Custodian requesting it for the purpose of distribution to beneficial owners.
45.
Requests to the Fund Administrator for additional copies of the Claims Packet in
excess of fifty (50) are subject to approval by the Fund Administrator, in consultation with the
Commission staff.
46.
Documented reasonable out-of-pocket expenses incurred by the Nominees or the
Custodians, which would not have been incurred but for compliance with paragraph 43 above, shall
be reimbursed from the Fair Fund. The amount of such expenses allowed will be at the discretion of
the Fund Administrator, in consultation with the Commission staff. Unless otherwise determined by
the Fund Administrator in consultation with the Commission staff, out-of-pocket expenses based on
the following rates will be considered reasonable:
8
(a)
a maximum of $0.08 per Claims Packet, plus postage at the pre-sort
postage rate per Claim Packet actually mailed;
(b)
$0.05 per email of Summary Publication or Plan Notice and Claim Form
link disseminated; or
(c)
$0.20 per name, address, and email address provided to the Fund
Administrator, up to a maximum of amount of $1,500.00.
47.
The Fund Administrator will attempt to locate any Preliminary Claimant whose
mailing is returned as “undeliverable” and will document all such efforts. The Fund Administrator
shall use its best efforts to make use of commercially available resources and other reasonably
appropriate means to obtain updated addresses in response to “undeliverable” notices, and forward
any returned mail for which an updated address is provided or obtained. The Fund Administrator
will make available, upon request by the Commission staff, a list of all Preliminary Claimants whose
Claims Packet have been returned as “undeliverable” due to incorrect addresses and for which the
Fund Administrator has been unable to locate current addresses.
Filing a Claim
48.
To avoid being barred from asserting a claim, on or before the Claims Bar Date, each
Preliminary Claimant must submit to the Fund Administrator a properly completed Claim Form
reflecting such Preliminary Claimant’s claim, together with all required supporting documentation as
the Fund Administrator, in its discretion, deems necessary or appropriate to substantiate the claim.
Without limitation, this information may include third-party documentary evidence of purchases and
dispositions of the Security as of the Relevant Date, as well as holdings of the Security as of the
pertinent date. The burden will be upon the Preliminary Claimant to ensure that his, her, or its Claim
Form has been properly and timely received by the Fund Administrator. A Claim Form that is
postmarked after the Claims Bar Date will not be accepted unless the deadline is extended by the
Fund Administrator for good cause shown, after consultation with the Commission staff.
49.
The burden to prove receipt of the claim by the Fund Administrator will be upon the
Preliminary Claimant; therefore the Preliminary Claimants will be instructed to submit their claims
in a manner that will enable them to prove receipt of the claim by the Fund Administrator.
50.
All Claim Forms and supporting documentation necessary to determine a Preliminary
Claimant’s eligibility to receive a distribution from the Fair Fund under the terms of the Plan must
be verified by a declaration executed by the Preliminary Claimant under penalty of perjury under the
laws of the United States. The declaration must be executed by the Preliminary Claimant, unless the
Fund Administrator accepts such declaration from a Person authorized to act on the Preliminary
Claimant’s behalf, whose authority is supported by such documentary evidence as the Fund
Administrator deems necessary.
51.
Electronic claims submission is encouraged; the Claims Packet will include directions
on how Preliminary Claimants can submit their claims electronically via the Fair Fund’s website. If
using the web-based claim filing option, a Preliminary Claimant must submit their claim to the Fund
Administrator by 11:59 p.m. on the Claims Bar Date. The Claims Packet will also include directions
9
for submission of claims if the Preliminary Claimant is unable to submit their claim electronically.
52.
When submitting claims to the Fair Fund on behalf of its clients, all Third-Party
Filers must use the electronic filing template provided by the Fund Administrator in this matter.
Filers that do not comply with the template and format provided by the Fund Administrator may be
rejected. Third-Party Filers must also submit a signed master proof of claim and release, as well as
proof of authority to file on behalf of the claimant(s) at the time the electronic file of transactions is
submitted. Failure to do so may result in rejection of the claim.
53.
Each Third-Party Filer must establish the validity and amount of each claim in its
submission. Third-Party Filers must submit such supporting documentary evidence of purchases,
dispositions, and holdings of the Security as the Fund Administrator deems necessary or appropriate
to substantiate each individual claim. Without limitation, this includes the complete name of the
Preliminary Claimant (beneficial account owner) and its TIN (for individuals) or EIN (for
companies), sufficient contact information to confirm the identity of the beneficial owner, and
documentation from the original bank, broker or other institution of purchases and dispositions of
the Security (account statements, confirmations and other documentation of purchases and
dispositions), as well as holdings of the Security on pertinent dates. Documentation generated by the
Third-Party Filer as well as affidavits in lieu of supporting documentation will not be accepted
unless, for good cause, the Fund Administrator determines it acceptable. The Fund Administrator
will have the right to request, and the Third-Party Filer will have the burden of providing to the Fund
Administrator, any additional information and/or documentation deemed necessary by the Fund
Administrator to substantiate the claim(s) contained in the submission. Documentation from a
Third-Party Filer that is not acceptable to the Fund Administrator will result in rejection of the
affected claim(s). The determination of the Fund Administrator to reject a claim for insufficient
documentation, as reflected on the Final Determination Notice, is final and within the discretion of
the Fund Administrator.
54.
The receipt of Securities by gifts, inheritance, devise, or operation of law will not be
deemed to be a purchase of Securities, nor will it be deemed an assignment of any claim relating to
the purchase of such Securities unless specifically so provided in the instrument of inheritance.
However, the recipient of Securities as a gift, inheritance, devise or by operation of law will be
eligible to file a Claim Form and participate in the distribution of the Fair Fund to the extent the
original purchaser would have been eligible under the terms of the Plan. Only one claim may be
submitted with regard to the same transactions in Securities, and in cases where multiple claims are
filed by the donor and donee, the donee claim will be honored, assuming it is supported by proper
documentation.
55.
Claims on behalf of a retirement plan covered by Section 3(3) of ERISA, 29 U.S.C.§
1002(3), which do not include Individual Retirement Accounts, and such plan’s participants, are
properly made by the administrator, custodian or fiduciary of the plan and not by the plan’s
participants. The Fund Administrator will distribute any payments on such claims directly to the
administrator, custodian or fiduciary of the retirement plan. The custodian or fiduciary of the
retirement plan will distribute any payments received in a manner consistent with its fiduciary duties
and the governing account or plan provisions.
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Claims Eligibility Determination
56.
The Fund Administrator will review all claim submissions and determine the
eligibility of each Preliminary Claimant to participate in the Fair Fund by reviewing claim data and
supporting documentation (or the lack thereof) and verifying the validity of the claim. Any
Preliminary Claimant with a valid claim that may have suffered a loss from holding shares of the
Security at the close of trading on the Relevant Date, and who is not an Excluded Party, will be
deemed an Eligible Claimant. The Fund Administrator will then determine if the Eligible
Claimant’s has suffered a Recognized Loss pursuant to the Plan of Allocation. Each Preliminary
Claimant will have the burden of proof to establish the validity and amount of his, her, or its claim,
and their qualification as an Eligible Claimant. The Fund Administrator will have the right to
request, and the Preliminary Claimant will have the burden of providing to the Fund Administrator,
any additional information and/or documentation deemed relevant by the Fund Administrator.
57.
The Fund Administrator will provide a Claim Status Notice within ninety (90) days of
the Claims Bar Date to each Preliminary Claimant who has filed a Claim Form with the Fund
Administrator, setting forth the Fund Administrator's determination of eligibility. The Claim Status
Notice will provide to each Preliminary Claimant whose claim is deficient, in whole or in part, the
reason(s) for the deficiency (e.g., failure to provide required information or documentation). In the
event the claim is denied, in whole or in part, the Claim Status Notice will state the reason for such
denial. The Claim Status Notice will also notify the Preliminary Claimant of the opportunity to cure
any deficiency or request reconsideration of the determination made by the Fund Administrator and
provide instructions regarding what is required to do so. Recognizing the nature of their claims,
Third-Party Filers may be sent Claim Status Notices electronically, and in bulk.
58.
Any Preliminary Claimant with a deficient claim will have thirty (30) days from the
date of the Claim Status Notice to cure any deficiencies identified in the Claim Status Notice.
59.
Any Preliminary Claimant seeking reconsideration of a denied claim must advise the
Fund Administrator in writing within thirty (30) days of the date of the Claim Status Notice. All
requests for reconsideration must include the necessary documentation to substantiate the basis upon
which the Preliminary Claimant is requesting reconsideration of their claim.
60.
The Fund Administrator will send, as appropriate, a Final Determination Notice to all
Preliminary Claimants who responded to the Claim Status Notice in an effort to cure a deficiency or
seek reconsideration of a rejected claim. The Fund Administrator will send such Final
Determination Notices no later than thirty (30) days following receipt of documentation or
information in response to the Claim Status Notice, or such longer time as the Fund Administrator
determines is necessary for a proper determination concerning the claim.
61.
The Fund Administrator may, in its sole discretion, consider disputes of any nature
presented in writing within thirty (30) days of the Claim Status Notice by Preliminary Claimants,
and will consult Commission staff as appropriate.
62.
The Fund Administrator will also have the authority, in its sole discretion, to waive
technical claim deficiencies and approve claims on a case-by-case basis, or in groups of claims. All
11
determinations made by the Fund Administrator in accordance with the Plan in any dispute, request
for reconsideration, or request to cure a deficient claim will be final and not subject to appeal.
63.
The Preliminary Claimant has the burden of notifying the Fund Administrator of a
change in his, her, or its current address and other contact information, and of ensuring that such
information is properly reflected on the Fund Administrator's records.
Distribution Methodology
64.
The Fund Administrator will determine if an Eligible Claimant suffered a Recognized
Loss in accordance with the Plan of Allocation. All Eligible Claimants who are determined to
receive a Distribution Payment pursuant to the Plan of Allocation will be deemed a Payee.
Establishment of a Reserve
65.
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”).
66.
After all disbursements and Administrative Costs are paid, any remaining amounts in
the Reserve will become part of the Residual described in paragraph 88 below.
Preparation of the Payment File
67.
Within forty-five (45) days following the date of the Final Determination Notices
described above, paragraph 60, 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 list of
Payees: (a) was compiled in accordance with the approved Plan; (b) is accurate as to the Payees’
names, addresses, Recognized Losses, and amount of their Distribution Payments; and (c) provides
all information necessary to make a payment to each Payee.
The Escrow Account
68.
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.
69.
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 named, and records
12
maintained, in accordance with the Escrow Agreement.
70. 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 shortterm 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 Eligible Claimants, tax obligations, and/or fees of the Tax
Administrator and/or Fund Administrator, 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.
71. 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.
72. The Fund Administrator shall 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. In consultation with Commission staff, the Fund Administrator shall work
with the Bank on an ongoing basis to determine an allocation of funds between the Escrow and
Distribution Account.
73. 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
74.
The Fund Administrator will seek to distribute the Net Available Fair Fund to all
Payees only after all Claim Forms have been processed and all Preliminary Claimants whose claims
have been rejected or disallowed, in whole or in part, have been notified and provided the
opportunity to contest or cure pursuant to the procedures set forth herein.
75. 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.
76. Upon issuance of an order to disburse, the amount of funds referred to on the Payee
List will be transferred to the Bank. The Fund Administrator will then use its best efforts to
commence mailing Distribution Payment checks and/or effect wire transfers within ten (10) business
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.
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77.
All checks will be issued by the Fund Administrator from the Distribution Account.
All checks will bear a stale date of one hundred twenty (120) 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
85 below.
78.
All 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 or her tax
advisor for advice regarding the tax treatment of the distribution; (c) a statement that checks will be
void and cannot be reissued after one hundred twenty (120) 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.
79.
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.
80.
Distribution Payments must be made by check or electronic payment payable to the
Payee (the beneficial account owner). A Third-Party Filer shall not be the payee of any Distribution
Payment check or electronic Distribution Payment. Any other payment arrangement must be
discussed with the Fund Administrator in consultation with the Commission staff and must be
authorized by the Payee. Compensation to the Third-Party Filer for its services may not be paid or
deducted from the Distribution Payment.
81.
If, after discussion with the Fund Administrator in consultation with the Commission
staff, and authorization by the Payee(s), a Distribution Payment is to be made to a Third-Party Filer
to distribute to the Payee(s), the Third-Party Filer will be required to complete a certification, which
will require them, at a minimum, to attest that any distribution to the custodian, trustee, or
investment professional representing multiple potentially eligible beneficial owners, will be
allocated for the benefit of current or former pooled investors and not for the benefit of management.
The certification form will be available on the Fair Fund website and upon request from the Fund
Administrator. All such Third-Party Filers must have an auditable mechanism available to the Fund
Administrator and the Commission staff to confirm that each Payee received the Distribution
Payment directed to them.
82.
The submission of a Claim Form and the receipt and acceptance of a Distribution
Payment by a Payee is not intended to be a release of a Payee’s rights and claims against any party.
83.
Electronic or wire transfers may be utilized at the discretion of the Fund
Administrator to transfer approved Distribution Payments to filers of claims on behalf of twenty (20)
or more Payees. Wire transfers will be initiated by the Fund Administrator using a two-party check
and balance system, whereby completion of a wire transfer will require an authorization by two
members of the Fund Administrator’s senior staff.
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Post-Distribution; Handling of Returned or Uncashed Checks; and Reissues
84.
The Fund Administrator shall use its best efforts to make use of reasonable
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 one hundred twenty (120) 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.
85.
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 sixty (60) days from the stale date of the original check or ninety (90) days
from the reissuance, and in no event will a check be reissued after one hundred twenty (120) days
from the date of the original issuance without the approval of Commission staff.
86.
The Fund Administrator will make reasonable efforts to contact Payees who have
failed to negotiate their Distribution Payment 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.
Disposition of Undistributed Funds
87.
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 of any available remaining funds, pursuant to the Commission’s Rules.
88.
A residual within the Fair Fund will be established for any amounts remaining after
the final disbursement to Payees from the Fair Fund (the “Residual”). The Residual may include
funds from, among other things, amounts remaining in the Reserve, distribution checks that have not
been cashed, checks or electronic payments that were not delivered or from funds returned to the
Commission, and Fair Fund tax refunds for overpayment or for waiver of IRS penalties.
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89.
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.
Accountings
90.
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 of all monies
earned or received and all monies spent in connection with the administration of the Plan with the
Commission during the first ten (10) days of each calendar quarter on a standardized accounting
form provided by the Commission staff.
91.
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 summarizing the final distribution statistics regarding distributions
to individuals and entities, and such other information requested by the Commission staff.
Termination of the Fair Fund
92.
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 amount remaining in the Residual that is infeasible
to return to investors, and any amounts returned to the Fair Fund in the future that are infeasible to
return to investors, to the U.S. Treasury, subject to Section 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.
93.
Once the Fair Fund has been terminated and funds, if any, are transferred to the U.S.
Treasury, no further claims will be allowed and no additional payments will be made whatsoever.
Miscellaneous
94.
When administering this Plan, the Fund Administrator, and/or each of its designees,
agents and assigns, may rely on: all applicable law; orders issued by the Commission, including
orders issued by delegated authority; orders issued by an administrative law judge, if any, appointed
in this proceeding; and any records, including records containing investor information, provided by
Commission staff.
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95.
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.
Wind-down and Document Retention
96.
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 two (2) 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.
97.
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.
VII.
NOTICE AND COMMENT PERIOD
98.
The Notice of Proposed Plan of Distribution and Opportunity to Comment (the
“Notice”) will be published on the Commission’s website at
http://www.sec.gov/litigation/fairfundlist.htm. Any person wishing to comment on the Plan must do
so in writing by submitting their comments to the Commission within thirty (30) days of the
publication of the Notice: (a) to the Office of the Secretary, United States Securities and Exchange
Commission, 100 F Street, NE, Washington, DC 20549-1090; (b) by using the Commission’s
Internet comment form (www.sec.gov/litigation/admin.shtml); or (c) by sending an email to rulecomments@sec.gov. Comments submitted by email or via the Commission’s website should
include “Administrative Proceeding File Number 3-20163” in the subject line. Comments received
will be available to the public. Persons should only submit comments that they wish to make
publicly available.
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EXHIBIT A
PLAN OF ALLOCATION
This Plan of Allocation is designed to compensate investors based on their losses on shares
of the Respondents’ common stock listed on a U.S. exchange and registered with the Commission
and traded under the symbol CVIA (the “Security”) held at the close of trading on March 22, 2019,
the date that Covia filed its Form 10-K for the fiscal year ended December 31, 2018, (the “Relevant
Date”) as a result of the Respondents’ misconduct. In that filing, Covia disclosed the Commission’s
investigation and its stock price subsequently fell $0.45 per share. Investors who did not hold shares
of the Security at the close of trading on the Relevant Date did not suffer a loss by the Respondents’
violative conduct or who are an Excluded Party5 and are ineligible to recover under this Plan.
The Fund Administrator will calculate each Eligible Claimant’s loss (the “Recognized Loss”)
as the number of shares of the Security the Eligible Claimant held at the close of trading on March
22, 2019, multiplied by $0.45 (the change in share price on March 25, 2019).
If the Recognized Loss calculates to a negative number, then the Recognized Loss will be
$0.00.
Additional Provisions
Options and Derivatives: Covia common stock is the only security eligible for recovery
under this Plan. Option contracts to purchase or sell the Security are not securities eligible for
recovery under the Plan. Transactions in the Security on the Relevant Date that are pursuant to, or in
connection with, a swap or another derivative will not be eligible for a recovery.
Allocation of Funds: If the Net Available Fair Fund, as defined in the Plan, equals or
exceeds the sum of the Recognized Losses of all Eligible Claimants, each Eligible Claimant’s
distribution amount will equal his, her, or its Recognized Loss, plus “Reasonable Interest” if
applicable. If the Net Available Fair Fund is less than the sum of the Recognized Losses of all
Eligible Claimants, each Eligible Claimant’s distribution amount will equal his, her, or its “Pro Rata
Share” of the Net Available Fair Fund (and no Reasonable Interest). In either case, the distribution
amount will be subject to the “Minimum Distribution Amount.”
Reasonable Interest: If the Net Available Fair Fund exceeds that necessary to pay all Eligible
Claimants their Recognized Losses in full, the Fund Administrator, in consultation with the
Commission staff, may include interest in the distribution amount to compensate Eligible Claimants
for the time value of their respective Recognized Losses. Reasonable interest will be calculated
using the Short-term Applicable Federal Rate plus three percent (3%), compounded quarterly from
the Relevant Date through the approximate date of the disbursement of the funds. If there are
insufficient funds to pay Reasonable Interest in full to all Eligible Claimants, each Eligible Claimant
will receive his, her or its Pro Rata Share of the excess funds as the Reasonable Interest amount.
5
All capitalized terms used herein but not defined shall have the same meanings ascribed to them in the Plan.
1
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 their 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 that has a distribution amount (inclusive of Reasonable Interest,
if any) that 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, plus Reasonable Interest, if
applicable.
2
This is a copy of a public record, reproduced as it was published. It is not legal advice, and it may not be the version a court would rely on. Check the official source before you cite it.