# UNITED STATES OF AMERICA

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URL: https://www.frixlaw.com/law-library/documents/agency%3Asec%3A5ff0e4d381798cc2

## Record

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

## Text

UNITED STATES OF AMERICA
Before the
SECURITIES AND EXCHANGE COMMISSION
ADMINISTRATIVE PROCEEDING
File No. 3-12114

In the Matter of
American Express Financial
Corporation (now known as
Ameriprise Financial, Inc.)
Respondent.

PROPOSED PLAN OF DISTRIBUTION
SUMMARY
This is a plan for the distribution of approximately $9 million to investors who owned
shares between January 1, 2002 and September 30, 2003 in the following four mutual funds and
variable annuity products offered by American Express Financial Corporation1 (“AEFC” or
“Respondent”): VP Diversified Equity; Equity Select; New Dimensions and VP International. In
December 2005, the Securities and Exchange Commission (the “Commission” or “SEC”) agreed
to a settlement with AEFC in which the Commission alleged AEFC did not adequately disclose to
investors market-timing activities that were inconsistent with certain prospectus disclosures. The
Commission created a fund from monies paid by AEFC for investors injured by the alleged
misconduct. Market-timing activities at issue in the settlement impaired the value of investor
holdings and this plan provides for payments from the Fair Fund (defined below) intended to
restore that impaired value. Investors do not need to take any action to participate in this plan as
investor records will be used to identify injured investors.

1

American Express Financial Corp. is now known as Ameriprise Financial, Inc.

I.
On December, 1, 2005, the Commission issued a settled order (the “Order”) 2 against AEFC
for violations of the federal securities laws resulting from improper “market timing”. 3 The Order
found that,
[f]rom at least January 1, 2002 to August 31, 2002, AEFC allowed certain identified market
timers to continue to market time, contrary to the [AEFC] Funds’ new prospectus
disclosures that indicated that the [AEFC] Funds prohibited market timing. From May
2002 to October 2003, AEFC also allowed one identified market timer to market time
variable annuity products contrary to the variable annuity products’ prospectus disclosures.
Finally, from January 1, 2002 to September 30, 2003, AEFC failed to implement
procedures to detect and prevent market timing in 401(k) plans for employees of AEFC and
related companies or disclose that there were no such procedures in place to prevent a
number of past and present employees of AEFC and related companies from market timing
various [AEFC] Funds through their 401(k) retirement plans contrary to prospectus
disclosures. 4
The Order required Respondent to pay disgorgement and prejudgment interest in the total amount
of $10,000,000 and a civil money penalty of $5,000,000 and established a Fair Fund in the total
amount of $15,000,000 pursuant to Section 308(a) of the Sarbanes-Oxley Act of 2002 (“Fair
Fund”) for distribution to injured investors. On January 24, 2006, Respondent paid the $15 million
ordered. This Fair Fund has been deposited at the U.S. Treasury Bureau of the Fiscal Service
(“BFS”) for investment in government obligations. As of March 31, 2015, the approximate value
of the Fair Fund including accrued interest was $16.1 million. The Commission has custody of the
Fair Fund and shall retain control of the assets of the Fair Fund. The Fair Fund is still currently
deposited at BFS for investment in government obligations. Other than interest from its
investments, it is not anticipated that the Fair Fund will receive additional funds.
II.
The staff of the Commission developed this proposed Plan of Distribution (“Plan”), which
is submitted by the Respondent for distribution of the Fair Fund. This Plan sets forth the
methodology for allocating the Fair Fund among investors and the process by which the Fair Fund
2

See Order Instituting Administrative and Cease-and-Desist Proceedings, Making Findings, and Imposing Remedial
Sanctions and a Cease-and-Desist Order Pursuant to Sections 203(e) and 203(k) of the Investment Advisers Act of
1940 and Sections 9(b) and 9(f) of the Investment Company Act of 1940, Advisers Act Release No. 2451 (December 1,
2005).
3

“Market timing” refers to (a) frequent buying and selling of shares of the same mutual fund or (b) buying or selling
mutual fund shares in order to exploit inefficiencies in mutual fund pricing. Market timing, while not illegal per se,
can harm other mutual fund shareholders because it can dilute the value of their shares if the market timer is
exploiting pricing inefficiencies, disrupt the management of the mutual fund’s investment portfolio or cause the
targeted mutual fund to incur costs borne by other shareholders to accommodate frequent buying and selling of
shares by the market timer.

4

See Order, paragraph 3.

2

will be distributed. The Plan is subject to approval by the Commission, and the Commission
retains jurisdiction over the implementation of the Plan.
A.

Distribution Methodology

1.
This Plan calculates the total harm to AEFC fund and variable annuity product
investors as a result of the market-timing violations using a “dilution” methodology based upon
changes in each fund and product’s next-day net asset value per share (“NAV”). 5 According to
this approach, the harm to investors on a given day by a market timer is equal to the timer’s firstday gains generated by the timer’s purchases plus the timer’s first day losses avoided from timer
sales on that day. 6
2.
The methodology is represented by the following calculations where “t” represents
the day of the timer’s purchase or sale:
Investor Dilutiont=Timer First Day Gainst + Timer First-Day Losses Avoidedt.
“Timer First Day Gains” are the product of the number of shares purchased by the timer and the
one-day change in NAV, represented by the following calculation:
Timer First Day Gainst=Shares Purchasedtx(NAVt+1-NAVt).
“Timer First-Day Losses Avoided” are the product of the number of shares sold by the timer and
the one-day change in NAV, represented by the following calculation:
Timer First-Day Losses Avoidedt=-Shares Soldtx(NAVt+1-NAVt).
3.
On some days, dilution was negative, because timer transactions accreted, rather
than diluted, the fund. Accordingly, some market-timing transactions resulted in losses for the
timer and gains for investors.
4.
AEFC provided the Division with certain transaction data during the Division’s
investigation of market timing, including the transactions of market timers and their accounts
identified by AEFC. The calculations of dilution rely upon the data provided to the Division by
AEFC.
5

NAV represents the value of a mutual fund’s assets minus any liabilities per share and is calculated at least once per
business day.

6

The methodology for calculating each eligible investor’s share of the Fair Fund is intended to result in a payment to
each eligible investor that restores the impaired value of the investor’s investment in the harmed funds and variable
annuity products resulting from the Respondent’s conduct described in the Order. Some of this impaired value is
susceptible to calculation, while some of this impaired value is not. The methodology is intended to estimate fairly and
reasonably each eligible investor’s harm and to calculate a payment in proportion to that amount. The Fair Fund is not
intended to compensate investors for losses they incurred because of fluctuations in securities markets that were
unrelated to Respondent’s conduct, as set forth in the Order.

3

5.
Based on the data provided to the Division, it has been determined that investors in
four funds and variable annuity products will be included in the distribution. 7
6.
For the investors of the four mutual funds and variable annuity products, the
aggregate dilution (accretion) to investors from market timing will be computed for each fund and
for each day during the period. An individual investor’s dilution (accretion) on a given day in a
given fund will be the investor’s pro-rata share of the aggregate dilution (accretion) that day. The
investor’s pro-rata share on a given day will be computed as the number of shares of the fund the
investor owns divided by the total number of shares held by all eligible accounts. An individual
investor’s dilution (accretion) will be estimated as the net of the investor’s dilution and accretion
across all days between January 1, 2002 and September 30, 2003. An effort will be made to
identify, by common social security number or other administratively feasible mechanism,
instances in which an individual investor’s dilution (accretion) can be aggregated across all four
funds and variable annuity products. If, after calculating dilution, an individual investor is
determined to have received a net benefit (accretion) from market-timing trades, such an investor
will not be eligible for a distribution and the value of such investor’s dilution will be set to zero. If
an individual investor is determined to have experienced a net loss (dilution) from market-timing
trades, such investor will be deemed an “Eligible Investor.”
7.
To account for the time-value of money, the dilution losses incurred by Eligible
Investors will be adjusted for the accumulation of interest, on a compounded basis, from the time
the losses were incurred through a date shortly before the distributions are made. The interest rate
used for this calculation is the federal short-term rate, which is determined from a one-month
average of market yields from marketable obligations of the U.S. federal government with
maturities of three years or less
8.
Eligible Investors will receive a distribution equal to their estimated dilution plus
their foregone interest. Eligible Investors will not have to pay fees to receive their distribution.
9.
B.

NAVs for the variable annuity products are provided by AEFC.

Distribution of the Fair Fund
1.

Appointment of Administrators

The Order provides that “AEFC shall take all necessary and appropriate steps to administer
the final plan for distribution of disgorgement and penalty funds,” which, for purposes of this Plan,
means that AEFC shall cooperate with the Fund Administrator and the Tax Administrator (each
defined below) and provide information necessary to administer the Plan, as discussed further
below. The fees and expenses of administering this Plan, including the fees and expenses of the
Fund Administrator and the Tax Administrator and tax liabilities shall be paid from the Fair Fund,

7

Some funds that were market timed are being excluded from the distribution, such as those funds that experienced net
accretion due to market-timing activity and situations where dilution was negligible.

4

according to Rule 1105(e) of the Commission’s Rules on Fair Fund and Disgorgement Plans
(“Commission’s Rules”), 17 C.F.R. 201.1105(e), first from interest and then from principal.
a.
The Commission has appointed Damasco & Associates LLP as the Tax
Administrator of the Fair Fund. 8 The Fund Administrator and Respondent have agreed to
cooperate with the Tax Administrator in providing information necessary to accomplish the
income tax compliance, ruling and advice work assigned to the Tax Administrator by the
Commission. The payment of taxes and the fees and expenses of the Tax Administrator will come
from the Fair Fund.
b.
The Division proposes that Rust Consulting, Inc. (“Rust”), a third-party
service provider, serve as the administrator of the Fair Fund (“Fund Administrator”). The
Respondent has agreed to cooperate with the Fund Administrator in providing information
necessary to assist the Fund Administrator in fulfilling its duties and obligations described in
paragraph II.B.1.c. infra. The Fund Administrator will be compensated from the Fair Fund for
administering the distribution pursuant to this Plan and may submit an invoice for completed
services to Commission staff for filing with the Commission; upon approval of an application by
the Commission, the Fund Administrator will be paid its reasonable fees and expenses for those
services.
c.
Under the supervision of the Commission staff, and subject to customary
confidentiality and information security protections for the transmission of client data, the Fund
Administrator will perform the duties and obligations set forth herein, including overseeing the
administration of the Fair Fund, establishing bank accounts, calculating and processing distribution
payments, arranging for the issuance of checks and/or wires, attempting to locate shareholders,
assisting intermediaries such as brokers to facilitate their calculations and distributions,
cooperating with the Tax Administrator in providing the information necessary to accomplish
income tax compliance, providing accountings as discussed herein to the Commission, and setting
up and staffing a call center and website (per Section II.B.15.b.) to address shareholder questions
or concerns regarding the distribution. The Fund Administrator will maintain all documents,
including documents in any media, six (6) years after approval of the final accounting and
thereafter will transfer the documents to the Commission, pursuant to Commission direction. In
addition, the Fund Administrator will shut down the toll-free phone number and website
established specifically for the administration of the Fair Fund upon the transfer of any remaining
funds to the Commission.
d.
The Fund Administrator will obtain a bond in accordance with Rule 1105(c)
of the Commission’s Rules, 17 C.F.R. 201.1105(c). The bond amount will cover the total amount
to be distributed to investors. The cost of the bond premium will be paid from the Fair Fund, first
from the interest earned on the invested funds, then, if not sufficient, from the corpus.
e.
U.S. Bank will hold Fair Fund assets during the check-cashing period. U.S.
Bank maintains a Financial Institutions (FI) Bond, plus errors and omissions coverage and excess
professional liability coverage, with an aggregate limit of $175 million. The primary insurer is
8

See Order Directing Appointment of Tax Administrator, Advisers Act Release No. 2452 (December 1, 2005).

5

Indian Harbor Insurance Company, a company which, as of its most recent renewal, was rated A
by A.M. Best.
2.

Rules and Procedures for the Distribution Process

a.
The Plan is designed to distribute the Fair Fund among investors who held
shares in AEFC funds and variable annuity products that were diluted by market timers, subject
to the provisions in Sections II. A. 1. through II. A. 8. Investors identified as market timers are
excluded from the distribution (“Excluded Timers”).
b.
The monies to be distributed under this Plan are not being distributed
according to a claims-made process, so the procedures for providing notice and for making and
approving claims are not applicable.
c.
Excluded Timers are those Eligible Investors identified by AEFC who
engaged in market-timing activities that were inconsistent with the disclosures in the AEFC
Funds’ prospectuses. Excluded Timers may also include Eligible Investors who, upon the Fund
Administrator’s analysis of the trade data in connection with effectuating distributions under the
Plan and in consultation with the Commission staff, are determined to have engaged in
impermissible market-timing activities that were not previously identified by AEFC. Not later
than 60 days after the Commission’s final approval of the Plan, the Fund Administrator will
notify the Excluded Timers that they are excluded from the distribution of the settlement funds.
The notice will also inform the excluded timers that they can review the Plan through the Fund
Administrator’s website. An Excluded Timer may dispute its exclusion from the distribution by
submitting to the Fund Administrator a sworn statement under penalty of perjury containing
information about why it should not be excluded from the distribution. Any submission must be
made/postmarked to the Fund Administrator within 45 days after the date on the notice of
exclusion. The Fund Administrator, upon consulting with the Commission and the Respondent,
will resolve any dispute as to eligibility in its sole discretion and its decisions will be final.
Any submissions may be shared with the staff of the Commission. False statements in
connection with any submissions may subject the certifying individual or entity to civil or criminal
sanctions, including but not limited to, liability under 18 U.S.C. §1001, liability for any false
statements made in an unsworn certificate under penalty of perjury as permitted by 28 U.S.C.
§1746, or liability under any other applicable law.
3.

Categories of Potentially Eligible Investors

There are many forms of mutual fund share ownership, which vary depending on whether
the “shareholder of record” is the same as the “beneficial owner” (also referred to as the “ultimate
investor”). For example, a shareholder of record may be an individual, a joint account, a trust, a
retirement or 529 plan sponsor, a broker who administers an Omnibus Account or a Network
Account, or an investment company. Certain shareholders of record such as plan sponsors and
brokers hold shares on behalf of one or more ultimate investors. In intermediated relationships, the
shareholder of record may have certain pre-existing contractual and/or fiduciary duties to the

6

ultimate investors. For purposes of this Plan, four categories of shareholder accounts are
distinguished:
1)
“Direct Accounts” are retail shareholders and joint ownership
accounts that are held directly with the Respondent. In these accounts, the
shareholder of record and the beneficial owner are the same.
2)
“Omnibus Accounts” are accounts in which a financial institution
is the shareholder of record, serving as an intermediary, and holding shares on
behalf of clients who are the beneficial owners. Accounts of Retirement Plans, as
defined below, are not considered Omnibus Accounts for purposes of this Plan,
although a Retirement Plan could be a shareholder (of record or otherwise) with
other shareholders within an Omnibus Account.
3)
“Network Level Account” is an account that represents one
beneficial owner but for which name, address and other necessary identifying
information may be maintained by an intermediary.
4)
Accounts of “Retirement Plans” are accounts of any “employee
benefit plan”, as defined in Section 3(3) of ERISA, 29 U.S.C. §1002(3), which is
not: (1) an Individual Retirement Account, including a traditional IRA, a Roth
IRA, a SEP IRA, a SARSEP IRA, or a SIMPLE IRA, or (2) a Section 403(b)(7)
custodial account under a program not established or maintained by an employer,
whether or not the employee benefit plan is subject to Title 1 of ERISA. The
Retirement Plan may be the shareholder of record or the beneficial owner.
4.

Distributions to Direct Accounts

a.
All Eligible Investors with Direct Accounts are eligible to receive payment.
This includes both current and former investors in these funds.
b.
There will be a de minimis threshold of $10 for Direct Accounts, since it
will not be cost effective to distribute amounts of less than this amount. If there are sufficient
funds available, the Fund Administrator will increase, i.e., “gross-up,” payment amounts to $10 for
Eligible Investors whose initial payment amounts are calculated to be less than $10. The Fund
Administrator, in consultation with Commission staff, will determine an appropriate methodology
in order to fairly and efficiently implement a gross-up for Eligible Investors.
c.
With the reasonable assistance of the Respondent, the Fund Administrator
will seek to identify all Eligible Investors. The Fund Administrator will exercise commercially
reasonable care to determine that the name and address information for each Eligible Investor is
current.
d.
Once the relevant data has been collected, the Fund Administrator will
calculate the payment amounts for each Eligible Investor. These payment amounts, upon request
of Commission staff, may be independently reviewed and verified by an independent third party

7

proposed by the Fund Administrator and not unacceptable to Commission staff. The cost of an
independent third-party review will be paid from the Fair Fund.
e.
After payment amounts have been verified, a payee file will be prepared as
described in Section II.B.8.c. infra. The Fund Administrator will compare the payee file against
the United States Postal Service (“USPS”) records for updated address information and update the
payee file as necessary. The Fund Administrator will set up a database of all Eligible Investors and
track updates to addresses, name changes, etc.
f.
The Fund Administrator will contract with a vendor to print and mail
individual checks. Any returned checks will be traced for updated contact information, reissued
and remailed pursuant to Section II.B.9. infra.
g.
In addition to the above efforts, the Fund Administrator will establish a tollfree phone number and website to answer investor questions and for miscellaneous administrative
requests.
h.
Payments that are not claimed by investors by the void date on the check
with respect to Direct Accounts will remain in the Fair Fund and considered part of the
Undistributed Pool (described in Section II.B.11 infra).
i.
The Fund Administrator will report on the resolution of unclaimed investor
monies in its periodic accounting to the Commission, as described in Section II.B.13.a. infra.
5.

Distributions to Omnibus Accounts

a.
This Plan seeks, to the extent practicable and commercially reasonable, to
distribute funds through intermediary accounts to beneficial owners. The Fund Administrator
will use its best efforts to identify Omnibus Accounts by use of transfer agent records and other
resources of the Respondent. The Fund Administrator will, in accordance with the Plan,
determine net shares held in each Omnibus Account on a daily basis. The Fund Administrator
will calculate the total amount due to each Omnibus Account using the methodology set forth in
this Plan.
b.
If the aggregate amount due to the Omnibus Account is less than $1,000, it
will be considered a de minimis amount, and the Fund Administrator will so inform the Omnibus
Accountholder that the Omnibus Account will not be entitled to a distribution.
c.
Omnibus Accountholders that are due to receive $1,000 or more will have
three options with respect to administering the Plan:
Option 1:
The Fund Administrator will calculate payments to beneficial
owners and execute the distributions, based on account data and address files
provided by the Omnibus Accountholder.

8

The Omnibus Accountholder may provide the necessary data to the Fund
Administrator to calculate payments to beneficial owners. The reasonable out of
pocket costs incurred by the Omnibus Accountholder in conjunction with preparing
the data that would enable the Fund Administrator to calculate the payments and
execute the distribution will be reimbursed by the Fair Fund as described in
paragraph II.B.1. supra. In no case should the Omnibus Accountholder be
reimbursed more than the amount that would be distributed to the Omnibus
Accountholder if it were treated as a Direct Account investor.
Option 2:
The Fund Administrator will calculate the payments to beneficial
owners, based on account data and address files provided by the Omnibus
Accountholder, but the Omnibus Accountholder will execute the distributions.
The Omnibus Accountholder will provide the necessary data to the Fund
Administrator to calculate payments to beneficial owners. The reasonable out of
pocket costs incurred by the Omnibus Accountholder in conjunction with preparing
the data that would enable the Fund Administrator to calculate the payments will be
reimbursed by the Fair Fund as described in paragraph II.B.1. supra. In no case
should the Omnibus Accountholder be reimbursed more than the amount that
would be distributed to the Omnibus Accountholder if it were treated as a Direct
Account shareholder. The Fund Administrator will issue a single payment to the
Omnibus Accountholder for the total amount to be distributed. The Omnibus
Accountholder will bear the costs of executing the distribution to beneficial owners.
Option 3:
The Fund Administrator will provide the algorithm for calculating
the individual payments to the Omnibus Accountholder, but the Omnibus
Accountholder will both calculate the payments to beneficial owners and execute
the distributions to beneficial owners.
The Fund Administrator shall issue a single payment to the Omnibus
Accountholder for the total amount to be distributed. The Omnibus Accountholder
will bear all costs of calculating individual payments and distributing such
payments to beneficial owners.
d.
Whether the funds are distributed by the Fund Administrator (Option l),
distributed by the Omnibus Accountholder based on the Fund Administrator’s calculations
(Option 2), or both calculated and distributed by the Omnibus Accountholder (Option 3), the
procedures to be employed should be substantially the same as those employed for Direct
Accounts, except as described below:
1)
The Fund Administrator will engage in an “Outreach Process” by
which the Fund Administrator will use its best efforts to contact each Omnibus
Accountholder and request records of the beneficial owners (i.e., shares held by
each beneficial owner on each day). The beneficial owner’s name and address, as
well as the tax identification number, for each account within the Omnibus
Account, will be requested from the Omnibus Accountholder. The Omnibus

9

Accountholder will have no more than 30 days from the time that it is contacted by
the Fund Administrator to select one of the options described in Section II.B.5.c.
supra, and no more than 60 days thereafter to provide the requested data to the
Fund Administrator once an option is selected.

2)
The Omnibus Accountholder will be required to develop and
execute a program similar to that described for Direct Accounts, including a de
minimis amount no larger than the de minimis threshold for the beneficial owner of
$10.
3)
For current accounts, the Omnibus Accountholder has the option to
write a check or to credit the account of the beneficial owner.
4)
If an Omnibus Accountholder is unable to identify a beneficial
owner after receipt of the payment from the Fund Administrator, such beneficial
owner’s payment shall be returned to the Fund Administrator and will remain in the
Fair Fund and considered part of the Undistributed Pool as detailed in Section
II.B.11. infra.
5)
In the course of calculating payments in the distribution phase of
this Plan, the Fund Administrator or Omnibus Accountholder may determine that
payments due to an Omnibus Account’s beneficial owners may differ from the
amounts calculated pursuant to Section II.A. of this Plan. If the Fund
Administrator’s payment to an Omnibus Accountholder exceeds the payments due
to beneficial owners (e.g., there are beneficial owners who fail to meet the Direct
Account investor de minimis threshold), the excess shall be returned to the Fund
Administrator and will remain in the Fair Fund and considered part of the
Undistributed Pool as detailed in Section II.B.11. infra. If the Fund Administrator’s
payment to an Omnibus Accountholder is less than the payments to a plan’s
beneficial owners that exceed the de minimis levels (e.g., due to netting at the
Omnibus Account level that obscured damages due to beneficial owners), the
amount distributed to those beneficial owners will be proportionate to the funds
actually received by the Omnibus Accountholder.
e.
If the Omnibus Accountholder seeks to alter any of the procedures
described herein, they may apply to do so in writing to the Fund Administrator within 30 days of
receiving notice from the Fund Administrator. Any such application should explain (a) the
alteration in procedure they plan to employ and (b) the reasons for this request. The Fund
Administrator, in consultation with the Commission staff, will rule on these requests within 60
days of their receipt, but may request additional information from the Omnibus Accountholder.
If the Fund Administrator determines that the proposal would not materially affect the
distribution of funds to the beneficial owners, the proposal will be accepted. If the proposal is
not accepted, the Omnibus Accountholder will be given another opportunity to select among the
three options identified in Section II.B.5.c. supra. Otherwise, the monies that would have

10

otherwise been owed to the Omnibus Accountholder will remain in the Fair Fund and considered
part of the Undistributed Pool described in Section II.B.11. infra.
f.
If an Omnibus Accountholder: (1) does not respond to the Fund
Administrator’s Outreach Process or (2) does not provide to the Fund Administrator the
requested records of beneficial owners within 60 days of selecting one of the three options
identified in Section II.B.5.c. supra., the Fund Administrator will offer to the Omnibus
Accountholder to make the distribution in accordance with Option 3 of this Plan, which is set
forth above, and will ask the Omnibus Accountholder to certify that it will make commercially
reasonable efforts consistent with its legal, fiduciary and contractual duties to make the
distribution to the beneficial owners in accordance with the methodology and deadlines set forth
in this Plan, and that the Omnibus Accountholder will return to the Fund Administrator any
undistributed money, which will remain in the Fair Fund and considered part of the
Undistributed Pool described in Section II.B.11. infra.
g.
The Fund Administrator will maintain records of each offer to an Omnibus
Accountholder regarding performing the functions in Option 3 and any certifications provided in
accordance with this Plan. These records will be provided to the Commission staff at least 30
days before the scheduled distribution is made.
6.

Distributions to Network Accounts

a.
This Plan seeks, to the extent practicable and commercially reasonable, to
distribute funds through intermediary accounts to beneficial owners. The Fund Administrator
will use its best efforts to identify Network Level Accounts (i.e., an account that represents one
beneficial owner but for which name, address and other necessary identifying information may
be maintained by an intermediary) by use of records and other resources of the Respondent.
b.
If the amount due to the Network Level Account is less than $10, it will be
considered a de minimis amount, and will not be entitled to a distribution. If there are sufficient
funds available, the Fund Administrator will gross-up payment amounts to $10 for Network
Level Accounts whose initial payment amounts are calculated to be less than $10. The Fund
Administrator, in consultation with Commission staff, will determine an appropriate
methodology in order to fairly and efficiently implement a gross-up for Network Level
Accounts.
c.
The Network Level Accountholder with network level accounts of $10 or
more will have two options with respect to administering the Plan:
Option 1:
The Fund Administrator will execute the distributions, based on
account data and address files provided by the Network Level Accountholder.
The Network Level Accountholder may provide the necessary data to the Fund
Administrator to make a distribution to beneficial owners. The reasonable out-ofpocket costs incurred by the Network Level Accountholder in conjunction with
preparing the data that would enable the Fund Administrator to execute the

11

distribution will be reimbursed by the Fair Fund as described in paragraph
II.B.1.supra. In no case should the Network Level Accountholder be reimbursed
more than the amount that would be distributed to the aggregate of all the network
level accounts for the Network Level Accountholder.
Option 2:
The Fund Administrator will provide the individual beneficial
owners’ payments to the Network Level Accountholder, but the Network Level
Accountholder will execute the distributions to beneficial owners.
The Fund Administrator shall issue a single payment to the Network Level
Accountholder for the total amount to be distributed. The Network Level
Accountholder will bear all costs of distributing such payments to beneficial
owners.
d.
Whether the funds are distributed by the Fund Administrator ( Option l) or
distributed by the Network Level Accountholder based on the payments provided by the Fund
Administrator (Option 2), the procedures to be employed should be substantially the same as
those employed for Direct Accounts, except as described below:
1)
The Fund Administrator will engage in an “Outreach Process” by
which the Fund Administrator will use its best efforts to contact each Network
Level Accountholder and request records to identify and locate the beneficial owner
for each network account. The Network Level Accountholder will have no more
than 30 days from the time that it is contacted by the Fund Administrator to select
one of the options described in Section II.B.6.c. supra, and no more than 60 days
thereafter to provide the requested data to the Fund Administrator once an option is
selected.
2)
For current accounts, the Network Level Accountholder has the
option to write a check or to credit the account of the beneficial owner.
3)
If a Network Level Accountholder is unable to identify a beneficial
owner after receipt of the payment from the Fund Administrator, such beneficial
owner’s payment shall be returned to the Fund Administrator and will remain in the
Fair Fund and considered part of the Undistributed Pool as detailed in Section
II.B.11. infra.
e.
If a Network Level Accountholder: (1) does not respond to the Fund
Administrator’s Outreach Process or (2) does not provide the Fund Administrator with the
requested records of beneficial owners within 60 days of selecting one of the two options
identified in Section II.B.6.c. supra, the Fund Administrator will offer the Network Level
Accountholder the option to make the distribution in accordance with Option 2 described in
Section II.B.6.c. supra. The Fund Administrator will request the Network Level Accountholder
to certify that it will make commercially reasonable efforts consistent with its legal, fiduciary
and contractual duties to make the distribution to the beneficial owners in accordance with the
methodology and deadlines set forth in this Plan, and that the Network Level Accountholder will

12

return to the Fund Administrator any undistributed money, which will remain in the Fair Fund
and considered part of the Undistributed Pool described in Section II.B.11. infra.
f.
The Fund Administrator will maintain records of each offer to a Network
Level Accountholder to make a distribution pursuant to Option 2 described in Section II.B.6.c.
and any certifications provided in accordance with this Plan. These records will be provided to
the Commission staff at least 30 days before the scheduled distribution is made.
7.

Distributions to Retirement Plans

a.
Accounts of Retirement Plans may be entitled to a distribution pursuant to
this Plan. In some cases, the Retirement Plan will be the shareholder of record and will receive its
distribution directly. In other cases, an intermediary, e.g., a broker-dealer, underwriter, and/or
record-keeper, may be the shareholder of record. Under this Plan, Individual Retirement Accounts
(“IRAs”) are treated as Direct Accounts, and distributions to IRAs will be made in accordance with
Section II.B.4. of this Plan.
b.
Distributions will be made to a Retirement Plan if the amount of the
distribution to the Retirement Plan meets the $1,000 de minimis threshold.
c.
Assets of Retirement Plans are held in trust by a trustee, and the trust is the
legal owner of the assets. This Plan requires the plan fiduciaries and intermediaries as defined in
Department of Labor Field Assistance Bulletin No. 2006-01, April 9, 2006 (the “Field Assistance
Bulletin”), of Retirement Plans to distribute the monies received in accordance with their legal,
fiduciary, and contractual obligations and consistent with guidance issued by the Department of
Labor, including, but not limited to, the Field Assistance Bulletin.
d.
Subject to Section II.B.7.c., an intermediary to one or more Retirement
Plans may allocate the distribution it receives pursuant to this Plan among eligible Retirement
Plans participating in an Omnibus Account administered by such intermediary according to the
procedure set forth in Section II.B.5. supra, provided, however, that for the purposes of such
allocation each Retirement Plan itself (and not the individual plan participants) shall be treated as
the beneficial owner. The fiduciary of a Retirement Plan receiving such a distribution should then
further distribute it as described below.
e.
Subject to Section II.B.7.c., this Plan proposes four alternatives (which are
not necessarily the only methods available) for Retirement Plan fiduciaries to follow in allocating
amounts received by or on behalf of Retirement Plans pursuant to this Plan:
1)
The Fund Administrator will make available the algorithm for
calculating the amounts owed to beneficial owners to assist those Retirement Plans
that intend to allocate their payments to individual plan participants;
2)
Retirement Plan fiduciaries may allocate the distribution pro rata
(based on total account balance) among the accounts of all persons who are

13

currently participants in the Retirement Plan (whether or not they are currently
employees);
3)
Retirement Plan fiduciaries may allocate the distribution amount per
capita among the accounts of all persons who are currently participants in the
Retirement Plan (whether or not they are currently employees);
4)
To the extent that none of the three preceding alternatives is
administratively feasible because the costs of effecting the allocation exceed the
amount of the distribution, Retirement Plan fiduciaries may, to the extent permitted
by the Retirement Plan, use the distribution amount to pay reasonable expenses of
administering the plan (the distribution amount should not be used to offset
expenses otherwise payable by the employer).
f.
In view of, among other things, alternative distribution methodologies
available to Retirement Plans, plan fiduciaries and/or intermediaries will not be reimbursed the
costs and expenses associated with administering the distribution received pursuant to this Plan.
8.

Execution of the Distribution

a.
The Fair Fund constitutes a Qualified Settlement Fund (“QSF”) under
Section 468B(g) of the Internal Revenue Code, 26 U.S.C. §468B(g), and related regulations, 26
C.F.R. §§1.468B-1 through 1.468B-5.
b.
Upon approval of the Plan, and after consultation with Commission staff,
the Fund Administrator shall establish accounts(s) described as follows at U.S. Bank. The Fund
Administrator shall establish with U.S. Bank an escrow account pursuant to an escrow agreement
(the “Escrow Agreement”) to be provided by the staff of the Commission, in the name of and
bearing the Employer Identification Number (“EIN”) of the QSF as defined in Section II.B.8.a.
supra. The Fund Administrator shall also establish with U.S. Bank a separate deposit account
(e.g. controlled distribution account, managed distribution account, linked checking and
investment account) for the purpose of funding distribution payments to be distributed to Eligible
Investors by the Fund Administrator pursuant to the Plan. The name of each account shall be in
the following form: “American Express Financial Corporation Distribution Fund, as custodian
for the benefit of investors allocated a distribution pursuant to the Plan in In the Matter of
American Express Financial Corporation, Administrative Proceeding File No. 3-12114.”
During the term of the Escrow Agreement, if invested, the Escrow Account shall be
invested and reinvested in short-term United States Treasury securities backed by the full faith
and credit of the United States Government or an agency thereof, of a type and term necessary to
meet the cash liquidity requirements for payments to Eligible Investors, tax obligations, and/or
fees of the Tax Administrator and/or Fund Administrator, including investment or reinvestment
in a bank account insured by the Federal Deposit Insurance Corporation (“FDIC”) up to the
guaranteed FDIC limit, or 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. The Fund Administrator shall provide duplicate original bank and/or investment

14

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.
In consultation with the staff of the Commission, the Fund Administrator shall work with
U.S. Bank on an ongoing basis to determine an allocation of funds between the escrow and the
deposit accounts.
All Fair Fund checks presented for payment or electronic transfer will be subject to “positive
pay” controls before being honored by U.S. Bank.

c.
In order to distribute funds, the Fund Administrator will submit a validated
list of payees, the payment amounts, and addresses to the assigned Commission staff, who will
obtain authorization from the Commission to disburse pursuant to Rule 1101(b)(6) of the
Commission’s Rules, 17 C.F.R. 201.1101(b)(6). The payees and amounts will be validated by the
Fund Administrator. The validation will state that the list was compiled in accordance with the
Plan and provides all information necessary to make disbursement to each distributee. Unless
otherwise directed by the Commission, the Commission staff will obtain an Order Directing
Disbursement that releases funds to the bank account established by the Fund Administrator based
upon the validated list and representation by the Fund Administrator that the checks or electronic
transfers will be issued within the next five business days.
9.

Fund Administrator’s Procedure for Handling Returned Checks

a.
All mail returned by the USPS for which a new forwarding address has
been provided by the USPS will be handled as follows: (1) coded as forwarded mail; (2) the
address will be updated in the master database; (3) the check will be voided; and (4) a replacement
check will be sent to the new address. All mail returned by the USPS for the first time, without a
new forwarding address, will be handled as follows: (1) coded as returned mail; (2) the check will
be voided; and (3) current address information will be forwarded to a nationally recognized
address search service for address research. If a new address is found, that address will be updated
to the master database and a new check will be issued. This new check may be issued with a stale
date of 30 or 60 days after issuance. If no new address is found, the original check will remain
voided. Additional efforts to identify the addresses of recipients will be conducted as is
commercially reasonable in the view of the Fund Administrator and the Commission staff, where
the costs of further research and the amount to be distributed will be considered, subject to a
presumption that the additional costs of distribution will not exceed the amount to be distributed.
b.
All mail returned by the USPS from a second attempt mailing, without a
new forwarding address, will be coded as returned mail and the check will be voided. Additional
efforts to identify the addresses of recipients will be conducted as is commercially reasonable in
the view of the Fund Administrator and the Commission staff, where the costs of further research
and the amount to be distributed will be considered, subject to a presumption that the additional
costs of distribution will not exceed the amount to be distributed.

15

c.
Funds attributable to any voided checks where no replacement is sent will
remain in the Fair Fund and considered part of the Undistributed Pool (described in Section
II.B.11. infra).
10.

Procedures for Handling Appeals

The appeals process will be detailed in communications to investors and on the website.
Appeals will be accepted only for failure to execute this Plan in accordance with its terms for
purposes of determining eligibility or for mechanical errors in determining eligibility or calculating
the payment to an investor. The Fund Administrator will not consider appeals other than those
identified in this Section.
Appeals are to be submitted in writing to the Fund Administrator, within 240 days of the
final approval of the Plan by the Commission. The Fund Administrator, in consultation with the
Commission staff, will resolve all appeals within 270 days of final approval of the Plan. The Fund
Administrator’s determination shall be final. Available funds from the Undistributed Pool may be
used to pay investors with successful appeals. Communications with investors about the
distribution may include a statement notifying investors that appeals are available through the
procedure specified in Section B.10. of this Plan. .
11.

Undistributed Pool

All undistributed funds, including but not limited to those resulting from Eligible Investors
that cannot be located, Excluded Timers, investors who decline payment, and amounts that do not
meet the de minimis threshold discussed in Sections II.B.4.b., 5.b., 6.b., and 7.b. supra, will be
aggregated into an Undistributed Pool. Upon termination of the Fair Fund as described in Section
II.B.12.b. infra, all undistributed funds will be returned to the Commission for transfer to the U.S.
Treasury.
12.

Timing of the Distribution Process

a.
The Fund Administrator shall complete the distribution as quickly as
commercially reasonable following the final approval of this Plan.
b.
The Fair Fund shall be eligible for termination, and the Fund Administrator
shall be eligible for discharge, after all of the following have occurred: (1) a final accounting, in an
SEC standard accounting format provided by the staff, has been submitted by the Fund
Administrator for approval of, and has been approved by, the Commission, (2) all taxes, fees and
expenses have been paid, and (3) any amount remaining in the Fair Fund has been received by the
Commission. When the Commission has approved the final accounting, the staff shall seek an
order from the Commission to transfer any amount remaining in the Fair Fund to the U.S.
Treasury, to terminate the Fair Fund, and discharge the Fund Administrator.
c.
For good cause shown, the Commission staff may extend any of the
procedural deadlines set forth in this Plan.

16

d.
The Fund Administrator shall take reasonable and appropriate steps to
distribute the Fair Fund according to the Plan. The Fund Administrator will inform the
Commission staff of any changes needed in the Plan. Upon agreement with Commission staff, the
Fund Administrator may implement immaterial changes to the Plan to effectuate its general
purposes. If a change is deemed to be material by the Commission staff, Commission approval is
required prior to implementation by amending the Plan, which may be done upon the motion of
any party or the Fund Administrator or upon the Commission’s own motion.
13.

Accounting

a.
Once the Fair Fund has been transferred to U.S. Bank, the Fund
Administrator will file an accounting with the Commission during the first ten days of each
calendar quarter on a standardized form provided by the Commission staff.
b.
Upon final distributions to Eligible Investors pursuant to the procedures
described herein, the Fund Administrator will submit a final accounting for approval by the
Commission on a standardized form provided by the Commission staff prior to the discharge of the
Fund Administrator and cancellation of the Fund Administrator bond.
14.

Tax Implications of the Distribution

This Plan does not provide tax advice to parties receiving payments. Eligible Investors are
advised to consult their own tax advisors. The Fund Administrator shall obtain from the Tax
Administrator an opinion as to the reporting and withholding obligations of the Fair Fund, if any,
with respect to the distribution.
15.

Public Information

a.
Eligible Investors receiving payments under this Plan shall receive and/or
be provided access to a communication that includes, as appropriate: (a) a statement characterizing
the distribution; (b) a description of the tax information reporting required of the QSF and related
tax consequences; (c) a statement that checks will be void 120 days after issuance; and (d) contact
information to be used in the event of any questions regarding the distribution. This
communication will either precede or accompany payments, and/or be made available on the
website established by the Fund Administrator for this distribution (see Section II.B.15.b. below
for more information on the website). Any such communication to recipients relating to their
distributions shall be submitted to the assigned Commission staff for review and approval. Such
communications will clearly indicate that the money is being distributed from a Fair Fund
established by the SEC.
b.
The Fund Administrator will provide customer support and communications
programs which will become active at least by the time the first distribution occurs. These services
shall include a toll free number and a website to the public. The Commission retains the right to
review and approve any material posted on the website. The website will be publicized in
communications to shareholders and in the media. The content may include descriptive
information and instructions, telephone numbers for customer service, links to the Plan, and a
17

description of the dispute process (see Section II.B.10. supra). No login will be required to access
the website. The website shall not contain any shareholder-specific information. The Fund
Administrator will set up and staff a dedicated call center with operators trained and dedicated to
responding to investor inquiries about the distribution process. The Fund Administrator shall
report on this activity periodically to the Commission staff.
16.

Notice and Comment

The Notice of the Proposed Plan of Distribution and Opportunity for Comment (“Notice”)
will be published in the SEC Docket and 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
date 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 (http://www.sec.gov/litigation/admin.shtml); or (c) by sending an email to
rule-comments@sec.gov. Comments submitted by email or via the Commission’s website should
include “Administrative Proceeding File No. 3-12114” in the subject line. Comments received
will be publicly available. Persons should only submit comments that they wish to make publicly
available.

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Source: Frix Law Library, https://www.frixlaw.com/law-library/documents/agency%3Asec%3A5ff0e4d381798cc2. Public record. Not legal advice.