UNITED STATES OF AMERICA

UNITED STATES OF AMERICA

Before the

SECURITIES AND EXCHANGE COMMISSION

ADMINISTRATIVE PROCEEDING

File No. 3-22173

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Merrill Lynch, Pierce, Fenner & Smith :

Incorporated

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Respondents.

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In the Matter of

PROPOSED PLAN OF

DISTRIBUTION

ADMINISTRATIVE PROCEEDING

File No. 3-22174

In the Matter of

Harvest Volatility Management

LLC,

Respondent.

I.

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OVERVIEW

1.

The Division of Enforcement submits this Proposed Plan of Distribution (the

“Plan”) to the United States Securities and Exchange Commission (the “Commission”) pursuant

to Rule 1101 of the Commission’s Rules on Fair Fund and Disgorgement Plans (the

“Commission’s Rules”), 17 C.F.R. § 201.1101. This Plan provides for the distribution of a Fair

Fund (the “Fair Fund”) comprised of disgorgement, prejudgment interest, and civil money

penalties paid by Merrill Lynch, Pierce, Fenner & Smith Incorporated (“Merrill Lynch”), 1 a

registered broker-dealer and investment adviser, and Harvest Volatility Management LLC

(“Harvest Volatility”), 2 a registered investment adviser (collectively, the “Respondents”) in the

See Order Instituting Administrative and Cease-and-Desist Proceedings, Pursuant to Section 15(b) of the

Securities Exchange Act of 1934 and Sections 203(e) and 203(k) of the Investment Advisers Act of 1940 (“Advisers

Act”), Making Findings, and Imposing Remedial Sanctions and a Cease-and Desist Order, Exchange Act Rel. No.

101158 (Sept. 25, 2024) (Admin. Proc. File No. 3-22173).

2

See Order Instituting Administrative and Cease-and-Desist Proceedings, Pursuant to Sections 203(e) and 203(k) of

the Investment Advisers Act of 1940, Making Findings, and Imposing Remedial Sanctions and a Cease-and-Desist

Order, Advisers Act Rel. No. 6726 (Sept. 25, 2024) (Admin. Proc. File No. 3-22174).

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above-captioned matter.

2.

As described more specifically below, the Plan seeks to compensate investors

who were harmed, by the Respondents’ conduct described in the Order, in connection with the

management fees paid to the Respondents for investments in the Collateral Yield Enhancement

Strategy (the “Security” or “CYES”) that exceeded contractual limits from March 1, 2016,

through April 30, 2018 (the “Relevant Period”). Based on information obtained by the

Commission staff during its investigation and the review and analysis of applicable records, the

Commission staff has reasonably concluded that it has all records necessary to calculate each

investor’s harm. As a result, the Fair Fund is not being distributed according to a claims-made

process, so procedures for making and approving claims in accordance with Rule 1101(b)(4) of

the Commission’s Rules, 17 C.F.R. § 201.1101(b)(4), are not applicable.

3.

As calculated using the methodology detailed in the Plan of Allocation (attached

as Exhibit A), investors will be compensated as follows: For each calendar quarter during the

Relevant Period, the Recognized Loss per Quarter is equal to the Preliminary Claimant’s average

notional amount of exposure to the Security’s underlying index during the quarter minus the

Preliminary Claimant’s contractual limit, multiplied by 0.125% (the estimated management fee

per dollar of notional exposure).

4.

In the view of the Commission staff, this methodology constitutes a fair and

reasonable allocation of the Fair Fund.

5.

The Commission has custody of the Fair Fund and will retain control of the assets

of the Fair Fund. The Plan is subject to approval by the Commission, and the Commission

retains jurisdiction over its implementation.

II.

BACKGROUND

6.

On September 25, 2025, the Commission issued two separate, but related, Orders

(the “Orders”) simultaneously settling administrative and cease-and-desist proceedings against

the Respondents. In the Orders, the Commission found that from March 2016 to April 2018,

Merrill Lynch referred certain clients to a third-party investment adviser, Harvest Volatility, to

manage an option overlay strategy, more specifically, Harvest Volatility’s Collateral Yield

Enhancement Strategy, pursuant to the terms of an Investment Management Agreement

(“IMA”). In the Orders, the Commission found that Harvest Volatility purchased and sold

options contracts at levels materially above the levels clients authorized in the IMA. By failing

to comply with the IMA, Harvest Volatility caused hundreds of clients to be over exposed to the

strategy, resulting in higher fees and, during certain periods, financial losses. As a result,

Harvest Volatility willfully violated Section 206(2) of the Advisers Act. Harvest Volatility also

failed to adopt and implement written compliance policies and procedures reasonably designed

to prevent violations of the Advisers Act and the rules thereunder in connection with its

execution of CYES with respect to authorized notional amounts. As a result, Harvest willfully

violated Section 206(4) of the Advisers Act and Rule 206(4)-7 thereunder.

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7.

The Commission further found that Merrill Lynch knew or reasonably should

have known that certain clients’ actual investment levels exceeded the dollar amounts designated

and agreed upon between the clients and Harvest Volatility. By failing to adequately notify

certain clients of their over-exposure, Merrill Lynch breached its fiduciary duties to those clients

and willfully violated Sections 206(2) and 206(4) of the Advisers Act and Rule 206(4)-7

thereunder.

8.

In their respective Orders, the Commission ordered Merrill Lynch to pay

$2,000,000.00 in disgorgement, $800,000.00 in prejudgment interest, and a $1,000,000.00 civil

money penalty; and Harvest Volatility to pay $2,500,000.00 in disgorgement, $1,000,000.00 in

prejudgment interest, and a $2,000,000.00 in civil money penalty, for a collective total of

$9,300,000.00 to the Commission. In each of the Orders, the Commission also created a Fair

Fund, pursuant to Section 308(a) of the Sarbanes-Oxley Act of 2002, so the penalty collected,

along with the disgorgement and prejudgment interest collected, can be distributed to harmed

investors, and further ordered that it may be added to or combined with any other fund

established in any related action arising out of the same facts.

9.

The Respondents have paid in full. The Fair Fund has been deposited in a

Commission-designated account at the U.S. Department of the Treasury (the “Treasury”), and

any interest accrued will be added to the Fair Fund.

III.

DEFINITIONS

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

10.

“Administrative Costs” means any administrative costs and expenses, including

without limitation tax obligations, the fees and expenses of the Tax Administrator and the Fund

Administrator, bond premium expenses, and investment and banking costs.

11.

“Certification Date” means the date established in accordance with this Plan by

which a Preliminary Claimant’s Certification Form must be postmarked or submitted

electronically in order to be eligible to participate in this distribution. The Certification Date will

be 120 days from the mailing of the Plan Notice.

12.

“Certification Form” means the form that must be completed and signed by each

Preliminary Claimant attesting to their name, mailing address, and sufficient information to

confirm their tax identification and status. By signing the Certification Form, the Preliminary

Claimant swears or affirms that all information provided is accurate and complete to the best of

their knowledge and that they are not an Excluded Party as defined in paragraph 16. The

Certification Form may be accompanied by tax forms, as required, relating to the tax treatment

of any distribution. All references to the Certification Form in this Plan incorporate by reference

any tax forms or other supporting documentation requested in the Plan Notice. If a Preliminary

Claimant fails to submit a Certification Form by the Certification Date, the Preliminary Claimant

may not be eligible to receive a Distribution Payment.

13.

“Determination Notice” means the notice sent within 60 days of the Certification

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Date to any Preliminary Claimant whose Certification Form is deficient, in whole or in part. The

Determination Notice will provide the reason(s) for the deficiency and in the event the

Preliminary Claimant has been deemed an Excluded Party, the Determination Notice will state

the reason(s) for such. The Determination 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.

14.

“Distribution Payment” means a payment from the Fair Fund to a Payee in

accordance with the terms of this Plan.

15.

“Eligible Claimant” means a Preliminary Claimant, who is determined to have

suffered a Recognized Loss, pursuant to the Plan of Allocation, and who is not an Excluded

Party or an Unresponsive Preliminary Claimant.

16.

“Excluded Party” means (a) the Respondents; (b) any present or former officers

or directors of the Respondents or 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 their affiliates who have been

terminated for cause or has otherwise resigned, in connection with the conduct described in the

Order; (d) any Person who, as of the Certification Date, has been the subject of criminal charges

related to the conduct described in the Order or any related Commission action; (e) the Fund

Administrator, their employees, and those Persons assisting the Fund Administrator in their role

as the Fund Administrator; and (f) any purchaser or assignee of another Person’s right to obtain a

recovery from the Fair Fund for value; provided, however, that this provision will not be

construed to exclude those Persons who obtained such a right by gift, inheritance or devise.

17.

“Fair Fund” means the 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.

18.

“Final Determination Notice” means the written notice sent to notify each

Preliminary Claimant that they have been determined to be either (a) an Eligible Claimant and

confirm their calculated amount of Recognized Loss; or (b) an Unresponsive Preliminary

Claimant or an Excluded Party and are not eligible for a distribution. A Final Determination

Notice will not be sent to a Preliminary Claimant if their Plan Notice was returned as

“undeliverable.” The Final Determination Notice will constitute the Fund Administrator’s final

ruling regarding the eligibility status and loss calculation and is not subject to appeal.

19.

“Net Available Fair Fund” means the Fair Fund, plus any interest or earnings,

less Administrative Costs.

20.

“Payee” means an Eligible Claimant whose distribution amount calculates, in

accordance with the Plan of Allocation, to a distribution amount equal to or greater than $20.00,

who will receive a Distribution Payment.

21.

“Person” means natural individuals as well as legal entities such as corporations,

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partnerships, or limited liability companies.

22.

“Plan Notice” means the written notice sent to each Preliminary Claimant

regarding the Commission’s approval of the Plan, including, as appropriate: a statement

characterizing the distribution; a link to the approved Plan posted on the Commission’s website

and instructions for requesting a copy of the Plan; the Certification Form, along with

specification of any information needed from the Preliminary Claimant to prevent them from

being deemed an Unresponsive Preliminary Claimant; their calculated Recognized Loss; a

description of the tax information reporting and other related tax matters; the procedure for the

distribution as set forth in the Plan; and the name and contact information for the Fund

Administrator as a resource for additional information or to contact with questions regarding the

distribution.

23.

“Plan of Allocation” means the methodology used by the Fund Administrator to

calculate if a Preliminary Claimant has suffered a Recognized Loss. The Plan of Allocation is

attached as Exhibit A.

24.

“Preliminary Claimant” means a Person, or their lawful successors, identified

by the Fund Administrator based on their review and analysis of applicable records obtained by

the Commission staff during and/or after its investigation, who may have suffered a loss as a

result of transactions in the Security during the Relevant Period; or those Persons who request a

Plan Notice, as described in paragraph 22, who are determined by the Fund Administrator to

have suffered a loss as a result of transactions in the Security during the Relevant Period.

25.

“Recognized Loss” means the amount of loss calculated in accordance with the

Plan of Allocation.

26.

27.

“CYES”).

“Relevant Period” is from March 1, 2016, through April 30, 2018.

“Security” means Collateral Yield Enhancement Strategy (the "Security" or

28.

“Unresponsive Preliminary Claimant” means (a) a Preliminary Claimant whose

address the Fund Administrator is not able to verify by the Certification Date; or (b) a

Preliminary Claimant who does not timely return the Certification Form and any other

information or documentation requested in the Plan Notice, or as specified in their Determination

Notice. Unresponsive Preliminary Claimants will not be eligible for a Distribution Payment.

IV.

TAX COMPLIANCE

29.

On March 5, 2025, the Commission appointed Heffler, Radetich & Saitta, LLP as

the tax administrator (the “Tax Administrator”) for the Fair Fund to handle the tax obligations of

the Fair Fund. 3 The Tax Administrator will be compensated for reasonable fees and expenses

from the Fair Fund in accordance with their 2025 Engagement Letter Agreement with the

3

See Order Appointing Tax Administrator, Exchange Act Rel. No. 102527 (Mar. 5, 2025).

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Commission.4

30.

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 will satisfy the

tax-related administrative requirements imposed by Treas. Reg. § 1.468B-2, including, but not

limited to:

(a)

Obtaining a taxpayer identification number;

(b)

Requesting funds necessary for the timely payment of all applicable taxes,

the payment of taxes for which the Tax Administrator has received funds,

and the filing of applicable returns; and

(c)

Fulfilling any information reporting or withholding requirements imposed

on distributions from the Fair Fund, including but not limited to Foreign

Account Tax Compliance Act (FATCA).

31.

All tax obligations will be paid from the Fair Fund, subject to the review and

approval of Commission staff.

V.

FUND ADMINISTRATOR

32.

On September 3, 2025, the Commission appointed Rust Consulting, Inc. (“Rust”),

as the fund administrator for the Fair Fund (the “Fund Administrator”), and the Fund

Administrator has obtained a bond in the amount of $9,300,000, as ordered. 5 Pursuant to Rule

1105(a) of the Commission’s Rules, 17 C.F.R. § 201.1105(a), the Fund Administrator may be

removed at any time by order of the Commission or hearing officer.

33.

The Fund Administrator will be responsible for administering the Fair Fund in

accordance with the Plan.

34.

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.

35.

The Fund Administrator may extend any procedural deadline contained in the

Plan for good cause shown, if agreed upon by the Commission staff.

See Omnibus Order Extending the Engagement of Two Tax Administrators for Appointment on a Case-By-Case

Basis in Administrative Proceedings that Establish Distribution Funds, Exchange Act Rel. No. 101986 (Dec. 19,

2024).

5

See Exchange Act Rel. No. 103849 (Sep. 3, 2025).

4

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36.

When administering this Plan, the Fund Administrator, and their 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.

37.

The Fund Administrator is authorized to enter into agreements with third parties

as may be appropriate or necessary in the administration of the Fair Fund, provided such third

parties are not excluded pursuant to other provisions of this Plan. In connection with such

agreements, the third parties will be deemed to be agents of the Fund Administrator under this

Plan.

38.

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 their

duties (including any such fees and expenses incurred by agents, consultants or third parties

retained by the Fund Administrator in furtherance of their duties).

VI.

PLAN PROCEDURES

Specification of Preliminary Claimants

39.

Using information obtained during and/or after its investigation, the Commission

staff have identified the Preliminary Claimants. Preliminary Claimants are limited to only those

Persons who may have suffered a loss as a result of transactions in the Security during the

Relevant Period.

Distribution Methodology

40.

The Fund Administrator will calculate each Preliminary Claimant’s Recognized

Loss in accordance with the Plan of Allocation. All Preliminary Claimants who are determined

to have a Recognized Loss, and who are not deemed an Excluded Party or an Unresponsive

Preliminary Claimant will be deemed Eligible Claimants.

41.

No Distribution Payments will be made for less than $20.00. If an Eligible

Claimant’s distribution amount, in accordance with the Plan of Allocation, calculates to a

distribution amount less than $20.00, that Eligible Claimant 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 $20.00. All Eligible

Claimants whose Recognized Loss calculates to a distribution amount equal to or greater than

$20.00 will be deemed a Payee and receive a Distribution Payment.

Procedures for Locating and Notifying Preliminary Claimants

42.

Within 45 days of Commission approval of the Plan, the Fund Administrator will:

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(a)

Establish and maintain a website devoted solely to the Fair Fund. The Fair

Fund’s website will make available a copy of the approved Plan, include a

copy of the Plan Notice and Certification Form, and related materials in

downloadable form, and such other information that the Fund

Administrator believes will be beneficial to Preliminary Claimants;

(b)

Establish and maintain a toll-free telephone number for Preliminary

Claimants to call and speak to a live representative of the Fund

Administrator during their regular business hours or, outside of such

hours, to hear pre-recorded information about the Fair Fund;

(c)

Establish and maintain a traditional mailing address and an email address

which will be listed on all correspondence from the Fund Administrator to

Preliminary Claimants as well as on the Fair Fund’s website;

(d)

Establish and maintain a case specific database of all Preliminary

Claimants based upon information provided to and obtained by the Fund

Administrator, including their last known physical and email addresses;

(e)

Run a National Change of Address search to retrieve updated addresses

for all records in the database, thereby ensuring the mailing information

for Preliminary Claimants is up to date; and

(f)

Send a Plan Notice and Certification Form to each Preliminary Claimant’s

last known email address (if known) and/or mailing address.

43.

The Commission staff retains the right to review and approve any material posted

on the Fair Fund’s website, any communication with investors, and any scripts used in

connection with communications with investors.

Undeliverable Mail

44.

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 will use their 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 Plan Notice have been returned as “undeliverable” due to incorrect

addresses and for which the Fund Administrator has been unable to locate current addresses. If

the mailing is returned again, and the Fund Administrator, despite best practicable efforts, is

unable to find a Preliminary Claimant’s correct address, the Fund Administrator, in their

discretion, may deem such Preliminary Claimant an Unresponsive Preliminary Claimant.

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45.

The Fund Administrator, with Commission staff approval, may engage a thirdparty search firm to conduct more rigorous searches for Persons whose mailings are returned as

undeliverable.

46.

Any Preliminary Claimant who relocates or otherwise changes contact

information after receipt of the Plan Notice must promptly communicate any change in address

or contact information to the Fund Administrator.

Procedures to Request Plan Notice

47.

Any Person who does not receive a Plan Notice and Certification Form, but is

aware of this Plan (e.g., through other Preliminary Claimants or on www.sec.gov) and believes

they should be included as a Preliminary Claimant should contact the Fund Administrator within

30 days from the approval of the Plan to establish that they should be considered a Preliminary

Claimant. Such Person should include with that communication, documentation sufficient to

support their assertion that they should be considered a Preliminary Claimant, as well as contact

information (physical address, telephone number, and email address, if available) for responsive

communications. The Fund Administrator will send the Person a Plan Notice and Certification

Form within 15 days of receiving the Person’s documentation, if the Fund Administrator

determines that the Person should be classified as a Preliminary Claimant.

Certification Requirement and Failure to Respond to Plan Notice

48.

To maintain classification as a Preliminary Claimant, a completed Certification

Form, together with all supporting documentation as requested in the Plan Notice, must be

signed by the Preliminary Claimant and returned to the Fund Administrator by the Certification

Date. The Certification Form must be executed by the Preliminary Claimant, unless the Fund

Administrator accepts such Certification Form from a successor, heir, administrator, or other

Person authorized to act on the Preliminary Claimant’s behalf. Those authorized to act on behalf

of a Preliminary Claimant will be eligible to participate in the distribution to the same extent the

original investor would have been eligible under the terms of the Plan.

49.

The Fund Administrator will review all Certification Forms. Each Preliminary

Claimant has the burden of proof to establish their identity as a Preliminary Claimant or their

successor. The Fund Administrator may request, and the Preliminary Claimant has the burden of

providing, any additional information and/or documentation deemed relevant by the Fund

Administrator.

50.

If a Preliminary Claimant fails to return the Certification Form or any requested

supporting documentation within 60 days from the initial mailing of the Determination Notice,

the Fund Administrator will make no fewer than two attempts to contact the Preliminary

Claimant by mail, telephone or email, if known. The second attempt will in no event take place

more than 90 days from the initial mailing of the Determination Notice.

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Dispute Process

51.

Disputes will be limited to calculation of Recognized Loss. If a Preliminary

Claimant disagrees with the Recognized Loss listed in the Plan Notice, such dispute must be

detailed on the Certification Form and returned to the Fund Administrator along with any

supporting documentation by the Certification Date. The Fund Administrator will investigate the

dispute, and such investigation will include a review of the written dispute as well as any

supporting documentation.

Review of Certification Forms and Deficiency Process

52.

The Fund Administrator will provide a Determination Notice within 60 days of

the Certification Date to any Preliminary Claimant whose Certification Form is deficient, in

whole or in part. The Determination Notice will provide the reason(s) for the deficiency and in

the event the Preliminary Claimant is determined to be an Excluded Party, the Determination

Notice will state the reason(s) for such. The Determination 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.

53.

Any Preliminary Claimant with a deficient Certification Form or missing required

documentation will have 30 days from the date of the Determination Notice to cure any

deficiencies identified in the Determination Notice.

54.

Any Preliminary Claimant seeking reconsideration of the Fund Administrator’s

determination made in the Determination Notice must advise the Fund Administrator in writing

within 30 days of the date of the Determination Notice. All requests for reconsideration must

include the necessary documentation to substantiate the basis upon which the Preliminary

Claimant is requesting reconsideration of the Fund Administrator’s determination.

55.

The Fund Administrator has the authority, in their sole discretion, to waive

technical deficiencies in the Certification Form.

Final Determination Notices

56.

The Fund Administrator will make their final eligibility determination only after

reviewing timely responses received to the Determination Notices and investigating any disputes

indicated on the Certification Forms regarding the Recognized Losses listed in the Plan Notices.

57.

Within 120 days of the Certification Date, a Final Determination Notice will be

sent to notify each Preliminary Claimant of their final eligibility determination. The Final

Determination Notice will notify each Preliminary Claimant that they have been determined to

be either (a) an Eligible Claimant and confirm their calculated Recognized Loss; or (b) an

Unresponsive Preliminary Claimant or an Excluded Party and are not eligible to receive a

Distribution Payment. A Final Determination Notice will not be sent to a Preliminary Claimant

if their Plan Notice was returned as “undeliverable.” The Final Determination Notice will

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constitute the Fund Administrator’s final ruling regarding the eligibility status and loss

calculation and is not subject to appeal.

Establishment of a Reserve

58.

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 Administrative Costs and to accommodate any

unexpected expenditures (the “Reserve”).

59.

After all Distribution Payments are made and Administrative Costs paid, any

remaining amounts in the Reserve will become part of the Residual described in paragraph 81.

Preparation of the Payment File

60.

Within 60 days following the date of the Final Determination Notices described

above, the Fund Administrator will compile and send to the Commission staff the Payee

information, including the name, address, calculated Recognized Loss, and the amount of the

Distribution Payment for all Payees (the “Payee List”). The Fund Administrator will also

provide a Reasonable Assurances Letter to the Commission staff, representing that the Payee

List: (a) was compiled in accordance with the approved Plan; (b) is accurate as to Payees’ names,

addresses, Recognized Losses and amounts of their Distribution Payment; (c) includes the

number of Payees compensated; (d) the percentage of the Payee’s Recognized Loss being

compensated by the disbursement from the Fair Fund, and if applicable, the total percentage to

include all prior disbursements; (e) the total amount of funds to be disbursed, and if applicable,

the total amount of such funds to be withheld pursuant to paragraph 58; and (f) provides all

information necessary to make a payment to each Payee.

The Escrow Account

61.

Prior to the disbursement of funds from 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.

62.

The Fund Administrator, pursuant to the Escrow Agreement, will 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 will be linked with the Escrow Account and will be

named, and records maintained, in accordance with the Escrow Agreement.

63. During the term of the Escrow Agreement, the portions of the Fair Fund transferred

to the Escrow Account (the “Escrow Property”) will be invested and reinvested in short-term

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U.S. Treasury securities backed by the full faith and credit of the U.S. Government or an agency

thereof. The investment will be, of a type and term necessary to meet the cash liquidity

requirements for payments to Payees and to pay Administrative Costs, including investment or

reinvestment in a bank account insured by the FDIC up to the guaranteed FDIC limit, or in

money market mutual funds registered under the Investment Company Act of 1940 that invest

100% of their assets in direct obligations of the U.S. Government.

64. The Fund Administrator will 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 will assist the Tax Administrator in obtaining mid-cycle statements, as

necessary.

65. The Fund Administrator, in consultation with the Commission staff, will work with

the Bank on an ongoing basis to deposit or invest funds in the Escrow and Distribution Accounts

so as to result in the maximum reasonable net return, taking into account the safety of such

deposits or investments and tax implications; and to determine an allocation of funds between the

Escrow and Distribution Account.

66.

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, their agents, or their affiliates from the Escrow Property.

Distribution of the Fair Fund

67.

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 from the Net Available Fair Fund 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.

68.

Upon issuance of an order to disburse, the Commission staff will direct the

transfer of funds in accordance with the Payee List to the Bank. The Fund Administrator will

then use their best efforts to commence mailing Distribution Payment checks and/or effect

electronic payments within 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.

69.

All checks will be issued by the Fund Administrator from the Distribution

Account. All checks will bear a stale date of 90 days from the date of issuance. Reissuance of a

check must be requested before the stale date, and such request is governed by paragraph 75.

70.

All Distribution Payments will be preceded or accompanied by a communication

that includes, as appropriate: (a) a statement characterizing the distribution; (b) a statement that

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the tax treatment of the distribution is the responsibility of each Payee and that the Payee should

consult their tax advisor for advice regarding the tax treatment of the distribution; however, any

backup withholding required under IRC § 3406(a) and the regulations promulgated thereunder,

or withholding required with respect to nonresident aliens (“NRAs”) under Chapter 3 of the IRC,

or FATCA-subject Payees under Chapter 4 of the IRC, will be withheld as required from the

Distribution Payment and remitted to the Internal Revenue Service on the Payee’s behalf; (c) a

statement that checks will be void and cannot be reissued after 90 days from the date the original

check was issued; and (d) contact information for the Fund Administrator for questions regarding

the Distribution Payment. The letter or other mailings to Payees characterizing a Distribution

Payment will be prepared by the Tax Administrator and provided to the Commission staff for

review and approval.

71.

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.

72.

At the discretion of the Fund Administrator, certain costs that were not factored

into the Reserve, such as bank fees for the return of a payment, may reduce the Payee’s

Distribution Payment. In such situations, the Fund Administrator will immediately notify the

Tax Administrator of the reduction in the Distribution Payment.

73.

Bank fees charged by the intermediary or designation bank selected by the Payee

may reduce a Payee’s Distribution Payment.

Post Distribution; Handing of Returned or Uncashed Checks; and Reissues

74.

The Fund Administrator will use their best efforts to make use of commercially

available resources and other reasonably appropriate means to locate all Payees whose checks

are returned to the Fund Administrator as “undeliverable.” If new address information becomes

available, the Fund Administrator will repackage the distribution check and send it to the new

address. If, within 90 days of the initial mailing of the distribution check, new address

information is not available after a diligent search or if the distribution check is returned again,

the Fund Administrator will void the distribution check, and at the discretion of the Fund

Administrator the Payee may be removed from the distribution and the allocated Distribution

Payment will remain in the Fair Fund for distribution, if feasible, to the remaining Payees.

75.

The Fund Administrator will reissue distribution 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 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 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 check to the requesting

party. Reissued checks will be void at the later of 90 days from issuance of the original check or

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60 days from the reissuance, and in no event will a check be reissued after 90 days from the date

of the original issuance without the approval of Commission staff.

76.

The Fund Administrator will work with the Bank and maintain information about

uncashed checks and any returned items due to non-delivery, insufficient addresses, and/or other

deficiencies. The Fund Administrator is responsible for researching and reconciling errors and

reissuing payments when possible. The Fund Administrator is also responsible for accounting

for all payments. The amount of all uncashed and undelivered payments will continue to be held

in the Fair Fund.

77.

The Fund Administrator will make and document their best efforts to contact

Payees to follow-up on the status of uncashed distribution checks over $100 (other than those

returned as “undeliverable”) and take appropriate action to follow-up on the status of uncashed

checks at the request of Commission staff. The Fund Administrator may reissue such checks,

subject to the time limits detailed herein. If a distribution check remains uncashed after the stale

date the Fund Administrator will instruct the Bank to issue a stop payment on the distribution

check. The Fund Administrator, in their 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.

Administrative Costs

78.

All Administrative Costs will be paid from the Fair Fund in accordance with the

Commission’s Rules. Upon completion of the final distribution, the Fund Administrator will

make arrangements, in consultation with the Commission staff, for the final payment of all

Administrative Costs.

Receipt of Additional Funds

79.

Should any additional funds be received pursuant to Commission or Court order,

agreement, or otherwise, prior to the Commission’s termination of the Fair Fund, such funds will

be added to the Fair Fund and distributed, if feasible, in accordance with the Plan, pursuant to the

Commission’s Rules.

Disposition of Undistributed Funds

80.

If funds remain following the initial distribution, the Fund Administrator, in

consultation with the Commission staff, may seek subsequent distribution(s) of any available

remaining funds, in a manner consistent with this Plan and in accordance with the Commission’s

Rules.

81.

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 were

returned to the Commission, and tax refunds due to the Fair Fund’s overpayment of taxes or for

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waiver of IRS penalties.

82.

Within 120 days of the stale date of the distribution payments, the Fund

Administrator, in consultation with the Commission staff, will determine whether further

distribution of the Fair Fund to investors is feasible. Within 10 days of the determination that

further distribution is infeasible, the Fund Administrator will direct the Bank to stop payment on

all uncashed Distribution Payments, and within 45 days, the Fund Administrator will return any

funds remaining in the Escrow and Distribution Accounts to the Commission to become part of

the Residual.

83.

All funds remaining in the Residual that are infeasible to distribute to investors

will be returned to the Commission and transferred to the Treasury, subject to Section 21F(g)(3)

of the Securities Exchange Act of 1934 (the “Exchange Act”), after the final accounting is

approved by the Commission. Returning such money to the Respondents would be inconsistent

with the equitable principle that no Person should profit from their wrongdoing. Therefore, in

these circumstances distributing disgorged funds to the Treasury is the most equitable

alternative.

Accountings

84.

In accordance with Rule 1105(f) of the Commission’s Rules, during the first 10

days of each calendar quarter after funds have been transferred to the Bank, the Fund

Administrator will file with the Commission, on a standardized accounting form provided by the

Commission staff, an accounting of all monies earned or received and all monies spent in

connection with the administration of the Plan.

85.

Upon completion of all distributions to Payees and the payment of all

Administrative Costs pursuant to the procedures described above, the Fund Administrator will

submit a final accounting for approval by the Commission on a standardized form provided by

the Commission staff. The Fund Administrator will also submit a report to the Commission staff

containing the final distribution statistics regarding distributions to individuals and entities, and

such other information requested by the Commission staff.

Wind-down and Document Retention

86.

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 upon the

transfer of any remaining funds to the Commission, as described in paragraph 82.

87.

The Fund Administrator will retain all materials submitted by Preliminary

Claimants in either paper or electronic form for a period of 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.

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Termination of the Fair Fund

88.

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 Treasury. Once the Commission has approved the final accounting, the Commission staff will

seek an order from the Commission authorizing: (a) the transfer of the Residual that is infeasible

to return to investors, and any amounts returned to the Fair Fund in the future that is infeasible to

return to investors, to the general fund of the 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.

VII.

NOTICE OF PROPOSED PLAN AND OPPORTUNITY FOR COMMENT

89.

The Notice of the Proposed Plan of Distribution and Opportunity for Comment

(the “Notice”) will be published on the Commission’s website

https://www.sec.gov/litigation/fairfundlist.htm. Any Person wishing to comment on the Plan

must do so in writing by submitting their comments within 30 days of the date of the Notice (a)

to the Office of the Secretary, United States Securities and Exchange Commission, 100 F Street,

N.E., Washington, D.C. 20549-1090; (b) by using the Commission’s Internet comment form

(https://www.sec.gov/litigation/admin.shtml); or (c) by sending an e-mail to rulecomments@sec.gov. Comments submitted by e-mail or via the Commission’s website should

include “Administrative Proceeding File No. 3-22173 & 3-22174” 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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Exhibit A

PLAN OF ALLOCATION

This Plan of Allocation is designed to compensate investors based on the management

fees paid to the Respondents for investments in the Collateral Yield Enhancement Strategy (the

“Security” or “CYES”) that exceeded contractual limits from March 1, 2016, through April 30,

2018 (the “Relevant Period”). Based upon records obtained by the Commission during its

investigation, the Fund Administrator has identified those investors, or their lawful successors,

who may have suffered losses by paying management fees for unwanted investments in the

Security during the Relevant Period due to the misconduct of the Respondents (the “Preliminary

Claimants”). Investors are ineligible to recover under this Plan if any of the following conditions

apply: (a) the investor did not invest in the Security through the Respondents during the Relevant

Period, (b) the investor’s investment management agreement allowed Respondents to purchase a

set number Securities (i.e., a set number of option contracts) for the investor’s account regardless

of the notional amount of exposure to the underlying index, or (c) the investor is an Excluded

Party.

The Methodology

The Fund Administrator will calculate each Preliminary Claimant’s loss (“Recognized

Loss”) as follows:

For each calendar quarter during the Relevant Period, the Recognized Loss per Quarter is

equal to the Preliminary Claimant’s average notional amount of exposure to the Security’s

underlying index during the quarter minus the Preliminary Claimant’s contractual limit,

multiplied by 0.125% (the estimated management fee per dollar of notional exposure). See

Equation 1. For calendar quarters that extend beyond the Relevant Period, the calculation of

Recognized Loss per Quarter includes only the portion of the quarter that is in the Relevant

Period.

Equation 1.

𝑅𝑅𝑅𝑅𝑅𝑅𝑅𝑅𝑅𝑅𝑅𝑅𝑅𝑅𝑅𝑅𝑅𝑅𝑅𝑅 𝐿𝐿𝐿𝐿𝐿𝐿𝐿𝐿 𝑝𝑝𝑝𝑝𝑝𝑝 𝑄𝑄𝑄𝑄𝑄𝑄𝑄𝑄𝑄𝑄𝑄𝑄𝑄𝑄

= (𝐴𝐴𝐴𝐴𝐴𝐴. 𝑁𝑁𝑁𝑁𝑁𝑁𝑁𝑁𝑁𝑁𝑁𝑁𝑁𝑁𝑁𝑁 𝐴𝐴𝐴𝐴𝐴𝐴𝐴𝐴𝐴𝐴𝐴𝐴 𝑜𝑜𝑜𝑜 𝐸𝐸𝐸𝐸𝐸𝐸𝐸𝐸𝐸𝐸𝐸𝐸𝐸𝐸𝐸𝐸 − 𝐶𝐶𝐶𝐶𝐶𝐶𝐶𝐶𝐶𝐶𝐶𝐶𝐶𝐶𝐶𝐶𝐶𝐶𝐶𝐶𝐶𝐶 𝐿𝐿𝐿𝐿𝐿𝐿𝐿𝐿𝐿𝐿) ∗ 0.125%

For example, if a hypothetical Preliminary Claimant had an average notional exposure of

$1 million during the quarter, and a contractual limit of $600,000 notional exposure, the

Preliminary Claimant’s Recognized Loss per Quarter for the quarter would be $500 (($1,000,000

- $600,000) * 0.125% = $500).

If the average notional amount of exposure to the Security’s underlying index during the

quarter is less than or equal to the contractual limit, the Recognized Loss per Quarter will be

$0.00.

Each Preliminary Claimant’s Recognized Loss is equal to the sum of his, her, or its

Recognized Losses per Quarter.

Any Preliminary Claimant who suffered a Recognized Loss pursuant to this Plan of

Allocation, and who is not an Excluded Party or an Unresponsive Preliminary Claimant, as

defined in the Plan, will be deemed an Eligible Claimant.

Allocation of Funds

Each Eligible Claimant’s distribution amount will equal his, her or its “Pro Rata

Percentage” of the Net Available Fair Fund. The distribution amount will be subject to the

“Minimum Distribution Amount.”

A.

Calculating an Eligible Claimant’s Pro-Rata Percentage

This computation is intended to measure Eligible Claimants’ Recognized Losses against

one another. Each Eligible Claimant’s Pro-Rata Percentage will be calculated for each Eligible

Claimant as the ratio of his, her, or its Recognized Loss to the sum of Recognized Losses of all

Eligible Claimants.

B.

Offset for Prior Recovery

To avoid payment of a windfall, an Eligible Claimant’s distribution amount will be no

larger than his, her, or its Recognized Loss minus the amount of any compensation for the loss

that resulted from the conduct described in the Order that was received from another source (e.g.,

class action settlement), to the extent known by the Fund Administrator (“Prior Recovery”).

That is, the distribution amount will be capped at the Recognized Loss less the Prior Recovery.

C.

Minimum Distribution Amount

The Minimum Distribution Amount will be $20.00. An Eligible Claimant whose

distribution amount is less than the Minimum Distribution Amount will be deemed ineligible and

his, her, or its distribution amount may be reallocated on a pro-rata basis to Eligible Claimants

whose distribution amounts are greater than or equal to the Minimum Distribution Amount.

D.

Payee and Distribution Payment

An Eligible Claimant whose distribution amount equals or exceeds the Minimum

Distribution Amount will be deemed a Payee, and will receive a Distribution Payment equal to

his, her, or its calculated distribution amount.

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