# UNITED STATES OF AMERICA

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URL: https://www.frixlaw.com/law-library/documents/agency%3Asec%3Ad2c9df60bfe98d23

## Record

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

## Text

UNITED STATES OF AMERICA
Before the
SECURITIES AND EXCHANGE COMMISSION

ADMINISTRATIVE PROCEEDING
File No. 3-21295

In the Matter of
Centaurus Financial, Inc., Ricky A.
Mantei, and Atul Makharia
Respondents.

I.

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PROPOSED PLAN OF
DISTRIBUTION

OVERVIEW

1.
The Division of Enforcement submits this Proposed Plan of Distribution (the
“Plan”) to the United States Securities and Exchange Commission (the “Commission”) pursuant
to Rule 1101 of the Commission’s Rules on Fair Fund and Disgorgement Plans (the
“Commission’s Rules”), 17 C.F.R. § 201.1101. This Plan provides for the distribution of a Fair
Fund (the “Fair Fund”) comprised of disgorgement, prejudgment interest, and civil money
penalties paid by Centaurus Financial, Inc. (“CFI”), a California corporation with its principal
place of business in Anaheim, California; Ricky A. Mantei (“Mantei”), a registered
representative of CFI; and Atul Makharia (“Makharia”), a supervisory principal associated with
CFI (collectively, the “Respondents”) in the above-captioned matter.1
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
Respondents’ sale of complex variable interest rate structured products (“VRSP”) to ninety-four
retail customers for whom they knew, or reasonably should have known, such investments were
unsuitable in light of each of the specific customers’ financial situation and needs. 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.
1

See Order Instituting Administrative and Cease-and-Desist Proceedings Pursuant to Section 8A of the Securities
Act of 1933, Sections 15(b) and 21C of the Securities Exchange Act of 1934, and Sections 203(e) and 203(f) of the
Investment Advisers Act of 1940, Making Findings, and Imposing Remedial Sanctions and a Cease-and-Desist
Order, Securities Act Rel. No. 11153 (Feb. 6, 2023). (the “Order”).

3.
As calculated using the methodology detailed in the Plan of Allocation (attached
as Exhibit A), investors will be compensated for their losses based on the sales commissions and
sales credits they paid in connection with purchasing VRSP from the Respondents between June
1, 2016 and July 31, 2019 (the “Relevant Period”).
4.
In the view of the Commission staff, this methodology constitutes a fair and
reasonable allocation of the Fair Fund.
5.
The Commission has custody of the Fair Fund and shall retain control of the
assets of the Fair Fund. The Plan is subject to approval by the Commission, and the Commission
retains jurisdiction over its implementation.
II.

BACKGROUND

6.
On February 6, 2023, the Commission issued the Order instituting and
simultaneously settling administrative and cease-and-desist proceedings against the Respondents.
In the Order, the Commission found that between June 2016 and July 2019, Makharia and seven
other registered representatives from CFI's Lexington, South Carolina branch office
(collectively, the “CFI RRs”) recommended the sale of complex VRSP to ninety-four retail
customers for whom they knew, or reasonably should have known, such investments were
unsuitable in light of each of the specific customers’ financial situation and needs. The
Commission further found that CFI and Mantei, the branch manager and owner of CFI’s
Lexington, South Carolina branch office, also failed reasonably to supervise the CFI RRs, and
CFI failed to make and keep certain required records relating to certain customer accounts. The
Commission ordered CFI to pay disgorgement of $4,876.00, prejudgment interest of $623.00,
and a civil money penalty of $750,000.00; Mantei to pay disgorgement of $92,650.00,
prejudgment interest of $11,842.00, and a civil money penalty of $206,000.00; and Makharia to
pay a civil money penalty in the amount of $35,000.00, for a collective total of $1,100,991.00 to
the Commission. The Commission also created the Fair Fund, pursuant to Section 308(a) of the
Sarbanes-Oxley Act of 2002, so the penalties collected, along with the disgorgement and interest
collected, can be distributed to harmed investors.
7.
The Respondents have paid in full. The Fair Fund has been deposited in a
Commission-designated account at the United States Department of 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” shall mean 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 Form” means the form that will be emailed or mailed to each

2

Preliminary Claimant in order to confirm his, her, or its calculated Recognized Loss, the name
and mailing address of the payee to which a Distribution Payment should be issued, if applicable.
The Certification Form may be accompanied by tax forms, as required, relating to the tax
treatment of any distribution.
10.
“Distribution Payment” means a payment from the Fair Fund to a Payee in
accordance with the terms of this Plan.
11.
“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.
12.
“Excluded Party” shall mean: (a) the Respondents, and Respondents’ officers
and directors, employees, promoters, independent contractors, agents, nominees, assigns,
creditors, heirs, distributees, spouses, parents, children, or controlled entities; (b) the Fund
Administrator, its employees, and those Persons assisting the Fund Administrator in its role as
the Fund Administrator; and (c) any purchaser or assignee of another Person’s right to obtain a
recovery from the Fair Fund for value; provided, however, that this provision shall not be
construed to exclude those Persons who obtained such a right by gift, inheritance or devise.
13.
“Fair Fund” means the 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.
14.
“Final Determination Notice” means the written notice sent by the Fund
Administrator to (a) any Preliminary Claimant who timely submitted a written dispute of his, her,
or its calculated Recognized Loss notifying the Preliminary Claimant of its resolution of the
dispute; and (b) those Preliminary Claimants who have not responded to the Plan Notice by
returning the Certification Form and/or any other requested documents, as described in
paragraph 46 notifying the Preliminary Claimant that he, she, or it has been deemed an
Unresponsive Preliminary Claimant. The Fund Administrator will not send a Final
Determination Notice to a Preliminary Claimant, if his, her, or its Plan Notice was returned as
“undeliverable.” The Final Determination Notice will constitute the Fund Administrator’s final
ruling regarding the status of the claim.
15.
“Net Available Fair Fund” means the Fair Fund, plus any interest or earnings,
less Administrative Costs.
16.
“Payee” means an Eligible Claimant whose distribution amount is equal to or
greater than $10.00, as calculated in accordance with the Plan of Allocation, who will receive a
Distribution Payment.
17.
“Person” means natural individuals as well as legal entities such as corporations,
partnerships, or limited liability companies.
18.

“Plan Notice” means a written notice from the Fund Administrator to each

3

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; a Certification Form,
along with specification of any information needed from the Preliminary Claimant to prevent
him, her, or it from being deemed an Unresponsive Preliminary Claimant; his, her, or its
preliminary Recognized Loss; a description of the tax information reporting and other related tax
matters; the procedure for the distribution as set forth in the Plan; and the name and contact
information for the Fund Administrator as a resource for additional information or to contact
with questions regarding the distribution.
19.
“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.
20.
“Preliminary Claimant” means a Person, or their lawful successors, identified
by the Fund Administrator based on its review and analysis of applicable records obtained by the
Commission staff during its investigation, who may have suffered a loss as a result of the sales
commissions and sales credits they paid in connection with purchasing VRSPs from the
Respondents during the Relevant Period.
21.
“Recognized Loss” means the amount of loss calculated in accordance with the
Plan of Allocation.
22.

“Relevant Period” is between June 1, 2016 and July 31, 2019, inclusive.

23.
“Unresponsive Preliminary Claimant” means a Preliminary Claimant whose
address the Fund Administrator has not been able to verify and/or who does not timely respond
to the Fund Administrator’s attempts to obtain information, including any information sought in
the Plan Notice. Unresponsive Preliminary Claimants will not be eligible for a distribution under
the Plan.
IV.

TAX COMPLIANCE

24.
On February 23, 2024, the Commission appointed Miller Kaplan Arase LLP as
the tax administrator (the “Tax Administrator”) for the Fair Fund to handle the tax obligations of
the Fair Fund.2 The Tax Administrator will be compensated for reasonable fees and expenses
from the Fair Fund in accordance with its 2022-2024 Engagement Letter Agreement with the
Commission.3
25.
The Fair Fund constitutes a Qualified Settlement Fund (“QSF”) under Section
468B(g) of the Internal Revenue Code of 1986, as amended, 26 U.S.C. § 468B(g), and related
regulations, 26 C.F.R. §§ 1.468B-1 through 1.468B-5. The Tax Administrator is the
administrator of such QSF for purposes of Treas. Reg. § 1.468B-2(k)(3)(I) and shall satisfy the
2

See Order Appointing Tax Administrator, Exchange Rel. No. 34-99590 (Feb. 23, 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).
3

4

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.

26.
All tax obligations will be paid from the Fair Fund, subject to the review and
approval of Commission staff.
V.

FUND ADMINISTRATOR

27.
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).
28.
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.
29.
The Fund Administrator will be responsible for administering the Fair Fund in
accordance with the Plan. This will include, among other things, taking reasonable steps to
obtain accurate mailing information for Preliminary Claimants; establishing a website and
staffing a call center to address inquiries regarding the Plan; disseminating the Plan Notice and
Certification Form; preparing accountings; cooperating with the Tax Administrator appointed by
the Commission to satisfy any tax liabilities and to ensure compliance with income tax reporting
requirements, including but not limited to Foreign Account Tax Compliance Act (FATCA);
disbursing the Fair Fund in accordance with this Plan, as ordered by the Commission; and
researching and reconciling errors and reissuing payments, when possible.
30.
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.
31.
The Fund Administrator may extend any procedural deadline contained in the
Plan for good cause shown, if agreed upon by the Commission staff.
32.
When administering this Plan, the Fund Administrator, and/or each of its
designees, agents and assigns, may rely on: all applicable law; orders issued by the Commission,
including orders issued by delegated authority; orders issued by an administrative law judge, if

5

any, appointed in this proceeding; and any records, including records containing investor
information, provided by Commission staff.
33.
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 shall be deemed to be agents of the Fund Administrator under this
Plan.
34.
The Fund Administrator will be entitled to payment from the Fair Fund of
reasonable fees and expenses, including the bond premium, incurred in the performance of its
duties (including any such fees and expenses incurred by agents, consultants or third parties
retained by the Fund Administrator in furtherance of its duties).
VI.

PLAN PROCEDURES
Specification of Preliminary Claimants

35.
Using information obtained during its investigation, the Commission has
identified the Preliminary Claimants. Preliminary Claimants are limited to only those Persons
who may have suffered a loss as a result of the sales commissions and sales credits they paid in
connection with purchasing VRSPs from the Respondents during the Relevant Period.
Procedures for Locating and Notifying Preliminary Claimants
36.

Within 210 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 its 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;

6

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

37.
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
38.
The Fund Administrator will attempt to locate any Preliminary Claimant whose
mailing is returned as undeliverable by the U.S. Postal Service or otherwise, including an
advanced address search using commercially available resources, if feasible, and will document
all such efforts. If another address is obtained, the Fund Administrator will then resend it to the
Preliminary Claimant’s new address within 30 days of receipt of the returned mail. If the
mailing is returned again, and the Fund Administrator, despite best practicable efforts, is unable
to find a Preliminary Claimant’s correct address, the Fund Administrator, in its discretion, may
deem such Preliminary Claimant an Unresponsive Preliminary Claimant.
39.
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.
40.
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
41.
Any Person who does not receive a Plan Notice, as described in paragraph 36(f),
but who is aware of this Plan (e.g., through other Preliminary Claimants or on www.sec.gov) and
believes they should be included as a Preliminary Claimant should contact the Fund
Administrator within 225 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 claim 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 within 15 days of receiving the Person’s documentation, if the Fund Administrator
determines that the Person should have received a Plan Notice.

7

Certification Requirement by Preliminary Claimants and Failure to Respond to Plan
Notice
42.
In order to maintain classification as a Preliminary Claimant, the Certification
Form must be signed by the Preliminary Claimant under penalty of perjury under the laws of the
United States and returned to the Fund Administrator by the deadline stated in the Plan Notice.
The Certification Form must be executed by the Preliminary Claimant, unless the Fund
Administrator accepts such Certification Form from a Person authorized to act on the
Preliminary Claimant’s behalf, whose authority is supported by such documentary evidence as
the Fund Administrator deems necessary.
43.
The Fund Administrator will review all Certification Forms. Each Preliminary
Claimant will have the burden of proof to establish their identity as a Preliminary Claimant, or
his, her, or its successor. The Fund Administrator will have the right to request, and the
Preliminary Claimant will have the burden of providing to the Fund Administrator, any
additional information and/or documentation deemed relevant by the Fund Administrator.
44.
If a Preliminary Claimant fails to return the Certification Form and/or any
requested tax forms, as requested in the Plan Notice, within 45 days from the initial mailing of
the Plan Notice, the Fund Administrator will make no fewer than 2 attempts to contact the
Preliminary Claimant by telephone or email, if known to the Fund Administrator. If a
Preliminary Claimant fails to respond to the Fund Administrator’s contact attempts as described
in this paragraph, the Fund Administrator, in its discretion, may deem such Preliminary Claimant
an Unresponsive Preliminary Claimant.
Dispute Process
45.
Disputes will be limited to the Recognized Loss amount. Within 45 days of the
initial mailing of the Plan Notice, the Fund Administrator must receive a written communication
detailing any dispute along with any supporting documentation. The Fund Administrator will
investigate the dispute, and such investigation will include a review of the written dispute as well
as any supporting documentation.
Final Determination Notices
46.
Within 75 days of the initial mailing of the Plan Notices, the Fund Administrator
will send a Final Determination Notice to (a) any Preliminary Claimant who timely submitted a
written dispute as described in paragraph 45 above, notifying the Preliminary Claimant of its
resolution of the dispute; and (b) those Preliminary Claimants who have not responded to the
Plan Notice, as described in paragraph 42 above, except for those whose Plan Notice were
returned as undeliverable, notifying the Preliminary Claimant that he, she, or it has been deemed
an Unresponsive Preliminary Claimant.

8

Distribution Methodology
47.
The Fund Administrator will calculate each Preliminary Claimant’s Recognized
Loss in accordance with the Plan of Allocation. All Preliminary Claimants who are determined
to have a Recognized Loss, and who are not deemed an Excluded Party or an Unresponsive
Preliminary Claimant will be deemed an Eligible Claimant.
48.
No Distribution Payments will be made for less than $10.00. If an Eligible
Claimant’s distribution amount, in accordance with the Plan of Allocation, calculates to a
distribution amount less than $10.00, that Eligible Claimant will be deemed ineligible to receive
a Distribution Payment and his, her, or its distribution amount will be reallocated on a pro-rata
basis to Eligible Claimants whose distribution amounts are greater than or equal to $10.00. All
Eligible Claimants whose Recognized Loss calculates to a distribution amount equal to or greater
than $10.00 will be deemed a Payee and receive a Distribution Payment.
Establishment of a Reserve
49.
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”).
50.
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 69
below.
Preparation of the Payment File
51.
Within 60 days following the date the Fund Administrator has mailed all Final
Determination Notices, 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 (f) provides all
information necessary to make a payment to each Payee.
The Escrow Account
52.
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

9

“Bank”), pursuant to an escrow agreement (the “Escrow Agreement”) to be provided by
Commission staff.
53.
The Fund Administrator, pursuant to the Escrow Agreement, shall also establish
with the Bank a separate deposit account (e.g. controlled distribution account, managed
distribution account, linked checking and investment account) (the “Distribution Account”),
insured by the Federal Deposit Insurance Corporation (“FDIC”) up to the guaranteed FDIC pass
through limit. The Distribution Account shall be linked with the Escrow Account and both shall
be named, and records maintained, in accordance with the Escrow Agreement.
54. During the term of the Escrow Agreement, the portions of the Fair Fund transferred
to the Escrow Account (the “Escrow Property”) shall be invested and reinvested in short-term
U.S. Treasury securities backed by the full faith and credit of the United States Government or
an agency thereof. The investment shall be, of a type and term necessary to meet the cash
liquidity requirements for payments to Payees and Administrative Costs, including investment or
reinvestment in a bank account insured by the FDIC up to the guaranteed FDIC limit, or in
money market mutual funds registered under the Investment Company Act of 1940 that invest
100% of their assets in direct obligations of the United States Government.
55. The Fund Administrator shall provide duplicate original bank and/or investment
statements on any accounts established by the Fund Administrator to the Tax Administrator on a
monthly basis and shall assist the Tax Administrator in obtaining mid-cycle statements, as
necessary.
56. 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.
57.
All interest, dividends, and/or income earned by the Escrow Property will accrue
for the benefit of the Escrow Property. All Administrative Costs associated with the Escrow and
Distribution Accounts will be the responsibility of the Fund Administrator, who may be
reimbursed for said costs as provided in this Plan. No such Administrative Costs may be paid to
the Bank, its agents, and/or its affiliates from the Escrow Property.
Distribution of the Fair Fund
58.
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.
59.

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

10

transfer of funds in accordance with the Payee List to the Bank. The Fund Administrator will
then use its 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.
60.
All Distribution Payments 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 64.
61.
All Distribution Payments will be preceded or accompanied by a communication
that includes, as appropriate: (a) a statement characterizing the distribution; (b) a statement that
the tax treatment of the distribution is the responsibility of each Payee and that the Payee should
consult his, her or its tax advisor for advice regarding the tax treatment of the distribution;
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.
62.
All Distribution Payments, either on their face or in the accompanying mailing,
will clearly indicate that the money is being distributed from the Fair Fund established by the
Commission to compensate investors for harm as a result of securities law violations.
Post Distribution; Handing of Returned or Uncashed Checks; and Reissues
63.
The Fund Administrator shall use its best efforts to make use of commercially
available resources and other reasonably appropriate means to locate all Payees whose checks
are returned to the Fund Administrator as “undeliverable.” If new address information becomes
available, the Fund Administrator will repackage the distribution check and send it to the new
address. If, within 120 days after the initial mailing of the distribution check, new address
information for the Payee is not available or if the distribution check is returned again, the Fund
Administrator will void the distribution check, and in its discretion, may remove such Payee
from the distribution and the allocated Distribution Payment will remain in the Fair Fund for
distribution, if feasible, to the remaining Payees.
64.
The Fund Administrator will reissue checks to Payees upon the receipt of a valid,
written request from the Payee prior to the initial stale date. In cases where a Payee is unable to
endorse a Distribution Payment check as written (e.g., name changes, IRA custodian changes, or
recipient is deceased) and the Payee or a lawful representative requests the reissuance of a
Distribution Payment check in a different name, the Fund Administrator will request, and must

11

receive, documentation to support the requested change. The Fund Administrator will review the
documentation to determine the authenticity and propriety of the change request. If, in the
discretion of the Fund Administrator, such change request is properly documented, the Fund
Administrator will issue an appropriately redrawn Distribution Payment to the requesting party.
Reissued checks will be void at the later of 180 days from issuance of the original check 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.
65.
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.
66.
The Fund Administrator will make reasonable efforts to contact Payees who have
failed to negotiate their Distribution Payment check 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 Payment remains
uncashed after the stale date the Fund Administrator will instruct the Bank to issue a stop
payment on the check. The Fund Administrator, in its discretion, may remove such Payee from
the distribution, and the allocated Distribution Payment will remain in the Fair Fund for
distribution, if feasible, to the remaining Payees.
Receipt of Additional Funds
67.
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
68.
If funds remain following the initial distribution and payment of all
Administrative Costs, the Fund Administrator, in consultation with the Commission staff, may
seek subsequent distribution(s) of any available remaining funds, pursuant to the Commission’s
Rules. All subsequent distributions shall be made in a manner that is consistent with this Plan.
69.
A residual within the Fair Fund will be established for any amounts remaining
after the final disbursement to Payees from the Fair Fund and the payment of all Administrative
Costs (the “Residual”). The Residual may include 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 for
overpayment of taxes or for waiver of IRS penalties.
70.

Once the Fund Administrator, in consultation with the Commission staff, deems

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further distribution of the Fair Fund to investors infeasible, the Fund Administrator will direct
any uncashed Distribution Payments to be voided, and return any remaining funds disbursed to
the Bank in paragraph 59 above, to the Commission to be added to the Residual.
71.
All funds remaining in the Residual that are infeasible to distribute to investors
will be transferred to the U.S. 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 his wrongdoing. Therefore, in these circumstances distributing
disgorged funds to the U.S. Treasury is the most equitable alternative.
Administrative Costs
72.
All Administrative Costs will be paid from the Fair Fund in accordance with the
Commission’s Rules.
Accountings
73.
In accordance with Rule 1105(f) of the Commission’s Rules, the Fund
Administrator shall provide to the Commission staff a progress report and a quarterly account
statement in a format to be provided by Commission staff, within 45 days of the Commission’s
approval of the Plan, and shall provide to Commission staff additional reports and quarterly
account statements within 10 days after the end of every calendar quarter. Such progress reports
shall inform the Commission staff of the activities and status of the Fair Fund during the
reporting period, and shall specify, at a minimum, the location of the account(s) comprising the
Fair Fund, including among other things, an interim accounting of all monies in the Fair Fund.
74.
When the final distribution is completed, the Fund Administrator shall provide to
Commission staff a final report summarizing all tasks undertaken and the outcome of its
administrative efforts. The Fund Administrator shall make arrangement for the final payment of
all Administrative Costs, and submit a final accounting of all monies received, earned, spent, and
distributed in connection with the administration of the Plan in a format 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
75.
The Fund Administrator will shut down the website, P.O. Box and customer
service telephone line(s) established specifically for the administration of the Fair Fund six
months after the transfer of any remaining funds to the Commission, or at such earlier time as the
Fund Administrator determines with the concurrence of the Commission staff.
76.
The Fund Administrator will retain all materials submitted by Preliminary
Claimants in either paper or electronic form for a period of six years from the date of approval of
a final fund accounting. Materials maintained in electronic form must be accessible and readable

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for the duration of retention. Pursuant to the Commission staff's direction, the Fund
Administrator will either turn over to the Commission or destroy all materials, including
documents in any media, upon expiration of this period.
Termination of the Fair Fund
77.
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 U.S. Treasury, subject to Section
21F(g)(3) of the Exchange Act; (b) discharge of the Fund Administrator; (c) cancellation of the
Fund Administrator’s bond; and (d) termination of the Fair Fund.
78.
The Fair Fund will be eligible for termination and the Fund Administrator will be
eligible for discharge after all of the following have occurred (a) a final accounting, in a standard
accounting format provided by the Commission staff, has been submitted by the Fund
Administrator and approved by the Commission; (b) all Administrative Costs have been paid;
and (c) any amount remaining in the Fair Fund has been returned to the Commission for transfer
to U.S. Treasury.
VII.

NOTICE OF PROPOSED PLAN AND OPPORTUNITY FOR COMMENT

79.
The Notice of the Proposed Plan of Distribution and Opportunity for Comment
(the “Notice”) shall be published on the Commission’s website
http://www.sec.gov/litigation/fairfundlist.htm. Any Person wishing to comment on the Plan
must do so in writing by submitting their comments within 30 days of the date of the Notice (a)
to the Office of the Secretary, United States Securities and Exchange Commission, 100 F Street,
N.E., Washington, D.C. 20549-1090; (b) by using the Commission’s Internet comment form
(www.sec.gov/litigation/admin.shtml); or (c) by sending an e-mail to rule-comments@sec.gov.
Comments submitted by e-mail or via the Commission’s website should include “Administrative
Proceeding File No. 3-21295 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 certain investors based on the sales
commissions and sales credits they paid in connection with purchasing Variable Interest Rate
Structured Products (“VRSP”) from the Respondents between June 1, 2016 and July 31, 2019,
inclusive (the “Relevant Period”). Investors who did not purchase VRSPs from the Respondents
during the Relevant Period, or investors for whom the VRSPs were not determined to be
unsuitable, are ineligible to recover under this Plan. 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 a loss as a result of the sales commissions and
sales credits they paid in connection with purchasing VRSPs from the Respondents during the
Relevant Period (the “Preliminary Claimants”).
I.

Calculating Recognized Loss

The Fund Administrator will calculate loss (“Recognized Loss”) as the sum of sales
commissions and sales credits paid by each Preliminary Claimant in connection with purchases
of VRSP from the Respondents during the Relevant Period.
II.

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

Allocation of Funds

If the Net Available Fair Fund, as defined in the Plan, is equal to or exceeds the sum of
Recognized Losses of all Eligible Claimants, each Eligible Claimant’s distribution amount will
equal his, her or its Recognized Loss, plus any “Reasonable Interest” awarded. If the Net
Available Fair Fund is less than the sum of the Recognized Losses of all Eligible Claimants, each
Eligible Claimant’s distribution amount will equal his, her or its “Pro Rata Percentage” of the
Net Available Fair Fund. In either case, the distribution amount will be subject to the “Offset for
Prior Recovery” and “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 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”), plus
any Reasonable Interest awarded. That is, the distribution amount will be capped at the
Recognized Loss less the Prior Recovery, plus any Reasonable Interest awarded.
C.

Reasonable Interest

If the Net Available Fair Fund exceeds the amount necessary to pay all Eligible Claimants their
Recognized Loss (minus any Prior Recovery) 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 three
percent (3%), compounded quarterly from the end of the Relevant Period 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 awarded on a pro-rata basis from the excess funds.
D.

Minimum Distribution Amount

The Minimum Distribution Amount will be $10.00. 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.
E.

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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Source: Frix Law Library, https://www.frixlaw.com/law-library/documents/agency%3Asec%3Ad2c9df60bfe98d23. Public record. Not legal advice.