# UNITED STATES OF AMERICA

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URL: https://www.frixlaw.com/law-library/documents/agency%3Asec%3Ac2247c010f6c31cd

## Record

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

## Text

UNITED STATES OF AMERICA
Before the
SECURITIES AND EXCHANGE COMMISSION
ADMINISTRATIVE PROCEEDING
File No. 3-21405
In the Matter of
Pinnacle Investments, LLC,
Respondent.
I.

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PROPOSED PLAN OF
DISTRIBUTION

OVERVIEW

1.
The Division of Enforcement submits this Proposed Plan of Distribution (the
“Plan”) to the United States Securities and Exchange Commission (the “Commission”) pursuant
to Rule 1101 of the Commission’s Rules on Fair Fund and Disgorgement Plans (the
“Commission’s Rules”), 17 C.F.R. § 201.1101. This Plan provides for the distribution of a Fair
Fund (the “Fair Fund”) comprised of disgorgement, prejudgment interest, and a civil money
penalty paid by Pinnacle Investments, LLC (the “Respondent”) in the above-captioned matter. 1
2.
As described more specifically below, the Plan seeks to compensate investors for
management advisory fees paid to the Respondent during the four-year period when the
Respondent failed to conduct adequate periodic reviews for certain client advisory accounts to
determine whether they were being managed in accordance with their investment mandates as
described in the Order. 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 who were harmed by the Respondent’s conduct as described in the Order
will be compensated for management advisory fees paid to the Respondent during the Relevant
Period, as defined below.

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, Making
Findings, and Imposing Remedial Sanctions and a Cease-and-Desist Order, Exchange Act Rel. No. 97448 (May 5,
2023) (the “Order”).
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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 May 5, 2023, the Commission issued the Order instituting and simultaneously
settling administrative and cease-and-desist proceedings against the Respondent. In the Order,
the Commission found that Pinnacle, a registered investment adviser and broker-dealer, made
false and misleading statements in Commission filings regarding reviews of advisory client
accounts; failed to adequately disclose its conflicts of interests in connection with the outside
business activities and related compensation arrangements of an Investment Adviser
Representative with an affiliated fund; failed to adopt and implement policies and procedures
reasonably designed to prevent violations of the Advisers Act concerning reviews of client
accounts and conflicts of interest; and failed to deliver required information concerning advisory
personnel to its clients. The Commission ordered the Respondent to pay $83,462 in
disgorgement, $11,874 in prejudgment interest, and a $393,381 civil money penalty, for a total
of $488,717, to the Commission. The Commission also created the Fair Fund, pursuant to
Section 308(a) of the Sarbanes-Oxley Act of 2002, so the penalty collected, along with the
disgorgement and interest collected, can be distributed to harmed investors.
7.
The Respondent has 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 accrued interest will be added to the Fair Fund.
III.

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

8.
“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.
9.
“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 60 days from the mailing of the Plan Notice.
10.
“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 14. The

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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.
11.
“Determination Notice” means the notice sent within 45 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 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.
12.
“Distribution Payment” means a payment from the Fair Fund to a Payee in
accordance with the terms of this Plan.
13.
“Eligible Claimant” means a Preliminary Claimant, 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.
14.
“Excluded Party” means (a) the Respondent; (b) any present or former officers
or directors of the Respondent’s 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 Respondent or any of its 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.
15.
“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 Respondent’s
violations described in the Order.
16.
“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.

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17.
“Net Available Fair Fund” means the Fair Fund, plus any interest or earnings,
less Administrative Costs.
18.
“Payee” means an Eligible Claimant whose distribution amount is equal to or
greater than $20.00, as calculated in accordance with the Plan of Allocation, who will receive a
Distribution Payment.
19.
“Person” means natural individuals as well as legal entities such as corporations,
partnerships, or limited liability companies.
20.
“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.
21.
“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.
22.
“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 paying management advisory fees to the Respondent during the Relevant Period; or
those Persons who request a Plan Notice, as described in paragraph 45, who are determined by
the Fund Administrator to have suffered a loss as a result of paying management advisory fees to
the Respondent during the Relevant Period.
23.
“Recognized Loss” means the amount of loss calculated in accordance with the
Plan of Allocation.
24.

“Relevant Period” is from January 1, 2015 through December 31, 2018.

25.
“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.

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IV.

TAX COMPLIANCE

26.
On November 13, 2024, 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. 2 The Tax Administrator will be compensated for reasonable fees
and expenses from the Fair Fund in accordance with their 2022-2024 Engagement Letter
Agreement with the Commission. 3
27.
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).

28.
All tax obligations will be paid from the Fair Fund, subject to the review and
approval of Commission staff.
V.

FUND ADMINISTRATOR

29.
A fund administrator (the “Fund Administrator”) will be appointed to administer
the Plan in accordance with Rule 1105(a) of the Commission’s Rules, 17 C.F.R. § 201.1105(a).
30.
The Fund Administrator will be required to obtain a bond in accordance with Rule
1105(c) of the Commission’s Rules, 17 C.F.R. § 201.1105(c). 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.
31.
The Fund Administrator will be responsible for administering the Fair Fund in
accordance with the Plan.
32.
To carry out the purposes of this Plan, the Fund Administrator will be authorized
to make and implement immaterial changes to the Plan upon agreement of the Commission staff.
See Order Appointing Tax Administrator, Exchange Act Rel. No. 101612 (Nov. 13, 2024).
See Omnibus Order Directing 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. 94845 (May 4, 2022).

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If a change is deemed to be material by the Commission staff, Commission approval is required
prior to implementation by amending the Plan.
33.
The Fund Administrator may extend any procedural deadline contained in the
Plan for good cause shown, if agreed upon by the Commission staff.
34.
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.
35.
The Fund Administrator will be 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.
36.
The Fund Administrator will be entitled to payment from the Fair Fund of
reasonable fees and expenses, including the bond premium, incurred in the performance of 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

37.
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 management advisory fees paid to the
Respondent during the Relevant Period.
Distribution Methodology
38.
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.
39.
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.

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Procedures for Locating and Notifying Preliminary Claimants
40.

Within 30 days of Commission approval of the Plan, the Fund Administrator will:
(a)

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

41.
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
42.
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

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unable to find a Preliminary Claimant’s correct address, the Fund Administrator, in their
discretion, may deem such Preliminary Claimant an Unresponsive Preliminary Claimant.
43.
The Fund Administrator, with Commission staff approval, may engage a third
party search firm to conduct more rigorous searches for Persons whose mailings are returned as
undeliverable.
44.
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
45.
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
45 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
46.
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.
47.
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.
48.
If a Preliminary Claimant fails to return the Certification Form or any requested
supporting documentation within 21 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 60 days from the initial mailing of the Determination Notice.

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Dispute Process
49.
Disputes will be limited to the calculation of Recognized Loss. If a Preliminary
Claimant disagrees with their Recognized Loss listed in their 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
50.
The Fund Administrator will provide a Determination Notice within 45 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.
51.
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.
52.
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.
53.
The Fund Administrator has the authority, in its sole discretion, to waive technical
deficiencies in the Certification Form.
Final Determination Notices
54.
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.
55.
Within 120 days of the Certification Date, a Final Determination Notice will be
sent to each Preliminary Claimant notifying them 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

9

constitute the Fund Administrator’s final ruling regarding the eligibility status and loss
calculation and is not subject to appeal.
Establishment of a Reserve
56.
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”).
57.
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 79.
Preparation of the Payment File
58.
Within 30 days of sending the Final Determination Notices described in
paragraph 55, 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 68; and (f) provides all
information necessary to make a payment to each Payee.
The Escrow Account
59.
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.
60.
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.
61.
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

10

short-term 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.
62.
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.
63.
The Fund Administrator, in consultation with the Commission staff, shall work
with the Bank on an ongoing basis to deposit or invest funds in the Escrow and Distribution
Accounts so as to result in the maximum reasonable net return, taking into account the safety of
such deposits or investments and tax implications; and to determine an allocation of funds
between the Escrow and Distribution Account.
64.
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
65.
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.
66.
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.
67.
All checks will be issued by the Fund Administrator from the Distribution
Account. All checks will bear a stale date of 180 days from the date of issuance. Reissuance of
a check must be requested before the stale date, and such request is governed by paragraph 73.
68.
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

11

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 180 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.
69.
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.
70.
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.
71.
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
72.
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 120 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.
73.
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 180 days from issuance of the original check

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or 60 days from the reissuance, and in no event will a check be reissued after 180 days from the
date of the original issuance without the approval of Commission staff.
74.
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.
75.
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
76.
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
77.
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
78.
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 that is consistent with this Plan and in accordance with the
Commission’s Rules.
79.
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

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returned to the Commission, and tax refunds due to the Fair Fund’s overpayment of taxes or for
waiver of IRS penalties.
80.
Within 180 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 issuing financial
institution 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
81.
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 Respondent 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
82.
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.
83.
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
84.
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 80.
85.
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
86.
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 the 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

87.
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. 3-21405” 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 1 is designed to compensate investors for management advisory
fees paid to the Respondent during a four-year period, from January 1, 2015 through December
31, 2018 (the “Relevant Period”), 2 when the Respondent failed to conduct adequate periodic
reviews for certain client advisory accounts to determine whether they were being managed in
accordance with their investment mandates as described in the Order. Based upon records
obtained by the Commission during its investigation, the Commission staff has identified those
investors, or their lawful successors, who may have suffered losses due to the misconduct of the
Respondent.
I.

The Methodology

The Fund Administrator will calculate each Preliminary Claimant’s amount of loss
(“Recognized Loss”) as the sum of management advisory fees paid by the Preliminary Claimant
to the Respondent each year (“Unearned Fees”) during the Relevant Period, based on documents
provided by the Respondent and calculations performed by the Commission staff.
II.

Recognized Loss

Recognized Loss will be as calculated above. If the Recognized Loss calculates to a
negative number, reflecting a gain, then the Recognized Loss will be $0.00.
III.

Becoming an Eligible Claimant

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 will be
deemed an Eligible Claimant.
IV.

Allocation of Funds

If the Net Available Fair Fund is equal to or exceeds the sum of Recognized Losses of all
Eligible Claimants, each Eligible Claimant’s distribution amount will equal their Recognized
Loss, plus “Reasonable Interest,” if applicable. If the Net Available Fair Fund is less than the
sum of the Recognized Losses of all Eligible Claimants, each Eligible Claimant’s distribution
amount will equal their “Pro Rata Percentage” of the Net Available Fair Fund (and no
Reasonable Interest). In either case, the distribution amount will be subject to the “Minimum
Distribution Amount.”

All capitalized terms used herein but not defined have the same meanings ascribed to them in the Plan.
The Order states the Respondent’s violative conduct spanned from January 2015 to October 2022 (paragraph 1).
The Relevant Period for the purposes of loss calculations ends December 31, 2018, prior to the Respondent’s efforts
in January 2019 to improve its account review process, advisory compliance program, and conflicts of interest
policy, as described in paragraphs 15, 22, and 24 of the Order.

1
2

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 as the ratio of
their Recognized Loss to the sum of Recognized Losses of all Eligible Claimants.
B.

Reasonable Interest

If the Net Available Fair Fund exceeds the amount necessary to pay all Eligible Claimants their
Recognized Loss in full, the Fund Administrator, in consultation with the Commission staff, may
include interest in the distribution amount to compensate for the time value of money. Reasonable
Interest will be calculated using the Short-term Applicable Federal Rate plus 3%, compounded
quarterly from the end of each year that Unearned Fees were paid through the approximate date of the
disbursement of the funds. If there are insufficient funds to pay Reasonable Interest in full to all
Eligible Claimants, Reasonable Interest will be awarded on a pro-rata basis from the excess funds.
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 will be reallocated on a pro-rata basis to Eligible Claimants
whose distribution amounts are greater than or equal to the Minimum Distribution Amount.
D.

Becoming a 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.
In no event will a Payee receive from the Fair Fund more than his, her, or its Recognized
Loss, plus Reasonable Interest, if applicable.

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Source: Frix Law Library, https://www.frixlaw.com/law-library/documents/agency%3Asec%3Ac2247c010f6c31cd. Public record. Not legal advice.