# UNITED STATES OF AMERICA

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URL: https://www.frixlaw.com/law-library/documents/agency%3Asec%3Ae9cd93cd49860ff9

## Record

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

## Text

UNITED STATES OF AMERICA
Before the
SECURITIES AND EXCHANGE COMMISSION
ADMINISTRATIVE PROCEEDING
File No. 3-21355
:
:
:
Chatham Asset Management, LLC and :
Anthony Melchiorre
:
:
Respondents.
:
In the Matter of

I.

PROPOSED PLAN OF
DISTRIBUTION

OVERVIEW

1.
The Division of Enforcement has prepared 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”). This Plan provides for the distribution of a Fair Fund (the “Fair Fund”)
comprised of disgorgement, prejudgment interest, and civil money penalties paid by Chatham
Asset Management, LLC (“Chatham”) and Anthony Melchiorre (“Melchiorre” and with
Chatham, collectively, the “Respondents”) in the above-captioned matter. 1
2.
As described more specifically below, the Plan seeks to compensate investors in
five funds 2 who paid excess performance (aka incentive) fees and management fees to Chatham
from January 2016 through December 2018, inclusive (the “Relevant Period”) and incurred
losses due to the Respondents’ violations as described in the Order. Each investor’s Recognized
Losses will be calculated in accordance with the Plan of Allocation (attached as Exhibit A).
3.
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 identified those investors, or their lawful successor who may have paid
excess performance or management fees and suffered losses as a result of the Respondents’
failure to correctly calculate the value of the client funds’ holdings and that it has all records
necessary to calculate each investor’s Recognized Loss in accordance with the Plan of Allocation
(attached as Exhibit A). As a result, the Fair Fund is not being distributed according to a claimsSee Order Instituting Administrative and Cease-and-Desist Proceedings, Pursuant to Sections 203(e), 203(f), and
203(k) of the Investment Advisers Act of 1940, and Sections 9(b) and 9(f) of the Investment Company Act of 1940,
Making Findings, and Imposing Remedial Sanctions and a Cease-and-Desist Order, Advisers Act Rel. No. 6270
(Apr. 3, 2023). (the “Order”).
2
The Chatham Asset High Yield Master Fund, Ltd.; the Chatham Asset Private Debt and Strategic Capital Fund,
LP; the Chatham Fund, LP; the Chatham Everest Fund, L.P.; and the Chatham Eureka Fund, LP (collectively, the
“Funds”).
1

1

made process, so procedures for making and approving claims in accordance with Rule
1101(b)(4) of the Commission’s Rules 3 are not applicable.
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 April 3, 2023, the Commission issued an Order Instituting Administrative and
Cease-and-Desist Proceedings, Pursuant to Sections 203(e), 203(f), and 203(k) of the Investment
Advisers Act of 1940, and Sections 9(b) and 9(f) of the Investment Company Act of 1940,
Making Findings, and Imposing Remedial Sanctions and a Cease-and-Desist Order against the
Respondents. In the Order, the Commission found that Chatham and Melchiorre violated the
antifraud provision of Section 206(2) of the Investment Advisers Act of 1940 (the “Advisers
Act”) and willfully aided and abetted violations of, and caused certain of their clients to violate,
Sections 17(a)(1) and 17(a)(2) of the Investment Company Act of 1940 (the “Company Act”).
Specifically, the Commission found that Chatham and Melchiorre traded, on behalf of their fund
clients, in three high-yield debt securities issued by American Media Inc. (“AMI”), a wholly
owned subsidiary of AMI Parent Holdings, LLC (“AMI Parent”). The Commission found that,
at times, from 2016 through 2018, Chatham and Melchiorre engaged in transactions in these
AMI debt securities (the “AMI Bonds”) that resulted in one Chatham fund selling AMI Bonds
and a different Chatham fund purchasing the same AMI Bonds, through various broker-dealers
(the “Rebalancing Trades”). According to the Order, over time, the prices at which Chatham and
Melchiorre traded the securities in the Rebalancing Trades increased at a significantly higher rate
than the prices of similar securities. The Commission also found that Chatham’s and
Melchiorre’s trading in the AMI Bonds accounted for the vast majority of the trading in those
Bonds and therefore, over time, had a material effect on their pricing.
7.
The Commission further found that Chatham and Melchiorre calculated the net
asset values (“NAVs”) of their client funds’ holdings using pricing data that was based, in part,
on the trading prices of the securities. According to the Order, as a result, the NAVs of
Chatham’s Clients were higher than they would have been if Chatham’s Rebalancing Trades
were removed from the market for the AMI Bonds, which, in turn, resulted in higher fees being
charged to the clients than would have been charged if Chatham’s Rebalancing Trades were
removed from the market for the AMI Bonds.
8.
Finally, the Commission found that many of the Rebalancing Trades involved
open-ended mutual funds regulated as registered investment companies (“RICs”). The
Commission found that, in those cases, Chatham and Melchiorre aided and abetted and caused
RICs to enter into prohibited affiliate transactions in violation of Sections 17(a)(1) and (2) of the
Investment Company Act.
3

17 C.F.R. § 201.1101(b)(4).

2

9.
The Commission ordered the Respondents to pay $11,000,000.00 in disgorgement
plus $3,375,072.00 in prejudgment interest, and civil penalties of $5,000,000.00, for a total of
$19,375,072.00, to the Commission pursuant to a payment plan ending 360 days following entry
of the Order. The Commission also created a Fair Fund, pursuant to Section 308(a) of the
Sarbanes-Oxley Act of 2002, so the penalties collected, along with the disgorgement and
prejudgment interest collected, can be distributed to harmed investors (the “Fair Fund”).
10.
The Fair Fund includes the $19,375,072.00 collected pursuant to the Order. The
assets of the Fair Fund are subject to the continuing jurisdiction and control of the Commission.
The Fair Fund has been deposited in a Commission-designated account at the U.S. Department
of the Treasury (“Treasury”), and any interest accrued will be added to the Fair Fund.
III.

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

11.
“Administrative Costs” shall mean any administrative costs and expenses,
including without limitation tax obligations, the fees and expenses of the Tax Administrator, and
investment and banking costs.
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 Respondents; (b) present or former officers or
directors of 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 its affiliates who has been
terminated for cause or has otherwise resigned, in connection with the conduct described in the
Order; (d) any Person who has been the subject of criminal charges related to the conduct
described in the Order or any related Commission action; and (e) 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.
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 Respondents’
violations described in the Order.
16.
“Final Determination Notice” means the written notice sent to (a) any
Preliminary Claimant who timely submitted a written dispute of his, her, or its calculated
Recognized Loss notifying the Preliminary Claimant of the Fund Administrator’s resolution of
the dispute; and (b) those Preliminary Claimants who have not responded to the Plan Notice as
described in paragraph 35, except for those whose Plan Notice were returned as “undeliverable,”
notifying the Preliminary Claimant that he, she, or it has been deemed an Unresponsive
3

Preliminary Claimant. The Final Determination Notice will constitute the Fund Administrator’s
final ruling regarding the status of the claim.
17.
“Net Available Fair Fund” means the Fair Fund, plus any interest or earnings,
less Administrative Costs.
18.
“Payee” means an Eligible Claimant whose distribution amount is equal to or
greater than $25.00, as calculated in accordance with the Plan of Allocation.
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 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; specification of any information needed from the Preliminary
Claimant to prevent them from being deemed an Unresponsive Preliminary Claimant; the
Preliminary Claimant’s 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 her review and analysis of applicable records obtained by
the Commission staff during its investigation, who may have paid excess performance (aka
incentive) fees and/or management fees to Chatham in connection with their investments in the
Funds during the Relevant Period; or those Persons who request a Plan Notice as described in
paragraph 37 that are determined by the Fund Administrator to have paid excess performance
(aka incentive) fees and management fees to Chatham in connection with their investments in the
Funds.
23.
“Recognized Loss” means the amount of loss calculated in accordance with the
Plan of Allocation.
24.

“Relevant Period” is from January 2016 through December 2018, inclusive.

25.
“Unresponsive Preliminary Claimant” means a Preliminary Claimant whose
address the Fund Administrator and/or the Third-Party has not been able to verify and/or who
does not timely respond to attempts to obtain information, including any information sought in
the Plan Notice. No further mailings will be sent to those deemed an Unresponsive Preliminary
Claimant under this provision. Unresponsive Preliminary Claimants will not be eligible for a
distribution under the Plan.

4

IV.

TAX COMPLIANCE

26.
On April 3, 2024, the Commission appointed Miller Kaplan Arase LLP as the Tax
Administrator for the Fair Fund to handle the tax obligations of the Fair Fund. 4 The Tax
Administrator will be compensated for reasonable fees and expenses from the Fair Fund in
accordance with its 2022-2024 Letter Agreement with the Commission.5
27.
The Fair Fund constitutes a Qualified Settlement Fund (“QSF”) under Section
468B(g) of the Internal Revenue Code of 1986, as amended (“IRC”), 26 U.S.C. § 468B(g), and
related regulations, 26 C.F.R. §§ 1.468B-1 through 1.468B-5. The Tax Administrator is the
administrator of such QSF for purposes of Treas. Reg. § 1.468B-2(k)(3)(I) and shall satisfy the
tax-related administrative requirements imposed by Treas. Reg. § 1.468B-2, including, but not
limited to:
(a)

Obtaining a taxpayer identification number;

(b)

Requesting funds necessary for the timely payment of all applicable taxes,
the 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.
Allison J.P. Moon is the Fund Administrator for the Fair Fund. As a Commission
employee, the Fund Administrator shall receive no compensation, other than her regular salary as
a Commission employee, for her services in administering the Fair Fund. In accordance with
Rule 1105(c) of the Commission’s Rules,6 no bond is required since the Fund Administrator is a
Commission employee.
30.
The Fund Administrator will be responsible for administering the Fair Fund in
accordance with the Plan. The Fund Administrator will engage a third-party, Simpluris, Inc. (the
“Third-Party”) to perform some of the administrative tasks associated with implementing the
Plan, including, among other things, providing Plan Notices to all investors, maintaining an email address with e-mail support, establishing a website and toll-free number, staffing a call
center to address inquiries regarding the Plan, verifying contact information for Preliminary
Claimants, disbursing payments in accordance with the Plan, researching and reconciling errors
and reissuing payments, and providing a financial accounting of the funds received from the
See Order Appointing Tax Administrator, Exchange Act Rel. No. 99895 (Apr. 3, 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).
6
17 C.F.R. § 201.1105(c).
4
5

5

Commission. The Third-Party’s fees and expenses will be paid from the Fair Fund as an
Administrative Cost, pursuant to a cost proposal submitted to and approved by the Commission
staff.
31.
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.
32.
The Fund Administrator may extend any procedural deadline contained in the Plan
for good cause shown, if agreed upon by the Commission staff.
VI.

PLAN PROCEDURES
Specification of Preliminary Claimants

33.
Using information obtained during and after its investigation, the Commission has
identified the Preliminary Claimants. Preliminary Claimants are limited to only those Persons
who may have suffered a loss during the Relevant Period as a result of the Respondents’ trading
of AMI Bonds, which artificially inflated the price of AMI Bonds and caused the investors to
pay excessive fees to Chatham.
Procedures for Locating and Notifying Preliminary Claimants
34.
Within 60 days of Commission approval of the Plan, a Plan Notice will be sent to
each Preliminary Claimant’s last known email address (if known) and/or mailing address.
Undeliverable Mail
35.
If any mailing is returned as undeliverable, the Third-Party will make the best
practicable efforts to ascertain a Preliminary Claimant’s correct address. If another address is
obtained, the Plan Notice will be resent to the Preliminary Claimant’s new address within 30
days of receipt of the returned mail. If the mailing is returned again, and the Third-Party, despite
best practicable efforts, is unable to find a Preliminary Claimant’s correct address, the Fund
Administrator, in her discretion, may deem such Preliminary Claimant an Unresponsive
Preliminary Claimant.
36.
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 or Third-Party.
Procedures to Request Plan Notice
37.
Any Person who does not receive a Plan Notice, as described in paragraph 34, 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 90 days of the approval of the Plan to establish that they should be
considered a Preliminary Claimant. Such Person should include with that communication,
6

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. If the Fund Administrator determines that the
Person should be classified as a Preliminary Claimant and should have received a Plan Notice, a
Plan Notice will be sent to the Person within 30 days of receiving the Person’s documentation.
Failure to Respond to Plan Notice
38.
If a Preliminary Claimant is requested to respond and fails to respond within 30
days from the initial mailing of the Plan Notice, the Third-Party will make no fewer than two
attempts to contact the Preliminary Claimant by telephone or email. The second attempt will in
no event take place more than 135 days from the Commission’s approval of the Plan. If a
Preliminary Claimant fails to respond to the Third- Party’s contact attempts as described in this
paragraph, the Fund Administrator, in her discretion, may deem such Preliminary Claimant an
Unresponsive Preliminary Claimant.
Dispute Process
39.
Disputes will be limited to the calculation of Recognized Loss. Within 150 days
of the Commission’s approval of the Plan, 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
40.
Within 180 days of the Commission’s approval of the Plan, a Final Determination
Notice will be sent to (a) any Preliminary Claimant who timely submitted a written dispute as
described in paragraph 39 above notifying the Preliminary Claimant of the Fund Administrator’s
resolution of the dispute; and (b) those Preliminary Claimants who have not responded to the
Plan Notice, as described in paragraph 38 above, except for those whose Plan Notice were
returned as undeliverable, notifying the Preliminary Claimant that they have been deemed an
Unresponsive Preliminary Claimant.
Distribution Methodology
41.
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.
42.
No Distribution Payments will be made for less than $25.00. If an Eligible
Claimant’s distribution amount calculates to less than $25.00, in accordance with the Plan of
Allocation, 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 $25.00. Any Eligible Claimant whose
distribution amount is equal to or greater than $25.00 will be deemed a Payee and receive a
Distribution Payment.
7

Establishment of a Reserve
43.
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”).
44.
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 58.
The Escrow Account
45.
Prior to the disbursement of funds from the Net Available Fair Fund, the ThirdParty will establish an escrow account at a United States commercial bank that is a wellcapitalized 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 provided by the Commission staff.
Preparation of the Payment File
46.
Following the issuance of 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, Distribution Payment, the percentage of harm
being compensated, and the amount to be withheld from the Distribution Payment for taxes, if
applicable (the “Payee List”). The Payee List will also include the total amount to be disbursed
to the Bank, along with the total amount to be disbursed to the Tax Administrator and transferred
to the Treasury as tax withholdings.
Distribution of the Fair Fund
47.
Pursuant to Rule 1101(b)(6) of the Commission’s Rules, 7 the Commission staff
will obtain an order from the Commission to disburse funds from the Net Available Fair Fund to
the Bank in accordance with the Payee List for distribution by the Third-Party in accordance
with the Plan. For any electronic payment, the exact amount necessary to make a payment shall
be transferred directly to the Payee’s bank account in accordance with written instructions
provided to the Bank by the Third-Party.
48.
All checks will bear a stale date of 180 days from the date of issuance. Checks
that are not negotiated by the stale date will be voided, and the Bank will be instructed to stop
payment on those checks. A Payee’s claim will be extinguished if they fail to negotiate their
check by the stale date, and the funds will remain in the Fair Fund except as provided in
paragraph 52.
49.
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
7

17 C.F.R. § 201.1101(b)(6).

8

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 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.
50.
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
51.
The Third-Party 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 Third-Party as “undeliverable.” If new address information becomes available, the ThirdParty will repackage the distribution check and send it to the new address. If new address
information is not available after a diligent search (and in no event no later than 150 days from
the date of issuance of the original check) or if the distribution check is returned again, the check
shall be voided and the Third-Party shall instruct the issuing financial institution to stop payment
on such check. If the Third-Party is unable to find a Payee’s correct address, the Fund
Administrator, in her 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.
52.
The Fund Administrator will direct the Third-Party to reissue checks or electronic
payments to Payees upon the receipt of a valid, written request from the Payee prior to the initial
stale date. In cases where a Payee is unable to endorse a Distribution Payment check as written
(e.g., name changes, IRA custodian changes, or recipient is deceased) and the Payee or a lawful
representative requests the reissuance of a Distribution Payment check in a different name, the
Fund Administrator will request, and must receive, documentation to support the requested
change. The Fund Administrator will review the documentation to determine the authenticity
and propriety of the change request. If, in the discretion of the Fund Administrator, such change
request is properly documented, the Fund Administrator will direct the Third-Party to issue an
appropriately redrawn Distribution Payment to the requesting party. Reissued checks will be
void at the later of 180 days from the date of issuance of the original check or 30 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.
53.
The Third-Party 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 Third-Party is responsible for researching and reconciling errors and reissuing

9

payments when possible. The Third-Party 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.
54.
The Third-Party will make and document its 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 direct the Third-Party to reissue such
checks, subject to the time limits detailed herein.
55.
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.
56.
Bank fees charged by the intermediary or designation bank selected by the Payee
may reduce a Payee’s Distribution Payment.
Receipt of Additional Funds
57.
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
58.
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, pursuant to the Commission’s Rules. All subsequent distributions shall be
made in a manner that is consistent with this Plan.
59.
A residual 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 due to the Fair Fund’s
overpayment of taxes or for waiver of IRS penalties.
60.
Once the Fund Administrator deems further distribution of the Fair Fund to
investors infeasible, the Fund Administrator will direct the Third-Party to have any uncashed
Distribution Payments voided and to return any remaining funds disbursed to the Bank pursuant
to paragraph 47 above to the Commission to become part of the Residual.
61.
All funds remaining in the Residual that are infeasible to distribute to investors
will be 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

10

no Person should profit from their wrongdoing. Therefore, in these circumstances distributing
disgorged funds to the Treasury is the most equitable alternative.
Administrative Costs
62.
All Administrative Costs will be paid from the Fair Fund in accordance with the
Commission’s Rules.
Accountings
63.
When all funds have been disbursed, except for the Residual described in
paragraph 59, the Third-Party will submit to the Fund Administrator a final report (the
“Third-Party Final Report”) that includes an accounting of all funds disbursed to the Bank. The
Third-Party Final Report will include, at a minimum, the number and total amount of payments
sent to Payees, the percentage of the Payee’s Recognized Loss compensated by the Distribution
Payment(s) from the Fair Fund, and the number and total amount of payments successfully
disbursed (i.e., cashed or electronically transferred) to Payees, and the amount of funds returned
to the Commission, pursuant to paragraph 60. The Third-Party Final Report must be endorsed by
a declaration executed by the Third-Party under penalty of perjury under the laws of the United
States.
64.
Upon receipt of the Third-Party’s Final Report described above, the Fund
Administrator will submit a final accounting pursuant to Rule 1105(f) of the Commission’s
Rules, 17 C.F.R. § 201.1105(f), for the Commission’s approval prior to termination of the Fair
Fund and discharge of the Fund Administrator. Since the Fund Administrator is a Commission
employee, no interim accountings will be made.
Termination of the Fair Fund
65.
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; and (c) termination of the Fair
Fund.
VII.

NOTICE OF PROPOSED PLAN AND OPPORTUNITY FOR COMMENT

66.
The Notice of the Proposed Plan of Distribution and Opportunity for Comment
(the “Notice”) shall 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:

11

(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. 3-21355 in the subject line.

Comments received will be publicly available. Persons should only submit comments that they
wish to make publicly available.

12

Exhibit A
PLAN OF ALLOCATION
This Plan of Allocation 1 is designed to compensate investors in the Funds 2 who paid
excess performance (aka incentive) fees and management fees to Chatham from January 2016
through December 2018, inclusive (the “Relevant Period”) and incurred losses due to the
Respondents’ violations as described in the Order. Investors who did not pay excessive fees to
Chatham during the Relevant Period and did not suffer any losses as a result of the Respondents’
violative conduct 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 successor who may have paid excess performance or management fees and suffered
losses as a result of the Respondents’ failure to correctly calculate the value of the Funds’
holdings.
The Fund Administrator will calculate each Preliminary Claimant’s loss (“Recognized
Loss”) as the sum of their performance fees and their management fees paid in excess of what
they would have paid had Chatham correctly calculated the Funds’ holdings, as follows:
A.

As part of the Commission’s investigation, Commission staff economists
calculated the “Excess Profit Rate” 3 and the “Excess Capital Rate” 4 (both
expressed as percentages) attributable to the Respondents’ misconduct in each of
the five Funds for each month of the Relevant Period.

B.

“Recognized Loss on Performance Fees” will be calculated as follows.
1.

For each Preliminary Claimant invested in any of the Funds during any
month of the Relevant Period, the “Monthly Loss from Performance Fees”
will be the Excess Profit Rate for that Fund in that month (as calculated in

All capitalized terms used herein but not defined shall have the same meanings ascribed to them in the Plan.
The Funds consist of the following hedge funds: the Chatham Asset High Yield Master Fund, Ltd.; the Chatham
Asset Private Debt and Strategic Capital Fund, LP; the Chatham Fund, LP; the Chatham Everest Fund, L.P.; and the
Chatham Eureka Fund, LP.
3
Excess Profit Rate is defined as the percentage increase in annual profits due to the Respondents’ violations, was
calculated for each Fund for each year of the Relevant Period and applied to each month in the year. For each Fund
and year, the Excess Profit Rate was calculated as the difference between (a) the annual increase in the value of the
Fund’s holdings less annual cash contributions as reported by the Respondents, and (b) the “corrected” value of the
same as calculated by Commission staff economists after removing the inflation in the value of the AMI Bonds in
each year, and dividing this difference by (b).
4
Excess Capital Rate is defined as the percentage increase in the value of month-end holdings due to the
Respondents’ violations, was calculated for each Fund at the monthly level. For each Fund and month, the Excess
Capital Rate was calculated as the difference between (a) the value of the Fund’s prior month-end holdings plus
monthly cash contributions as reported by the Respondents, and (b) the “corrected” value of the same as calculated
by Commission staff economists after removing the inflation in the value of the AMI Bonds in each month, and
dividing this difference by (b).
1
2

1

step A above) multiplied by the performance fees paid by the Preliminary
Claimant in that month.5
2.

C.

D.

The Recognized Loss on Performance Fees for a Preliminary Claimant
will be the sum of the Monthly Loss from Performance Fees across all
months of the Relevant Period and across all Funds held by the
Preliminary Claimant during the Relevant Period. 6

“Recognized Loss on Management Fees” will be calculated in a parallel fashion.
1.

For each Preliminary Claimant invested in any of the Funds during any
month of the Relevant Period, the “Monthly Loss from Management Fees”
will be the Excess Capital Rate for that Fund in that month (as calculated
in step A above) multiplied by the management fees paid by the
Preliminary Claimant in that month.

2.

The Recognized Loss on Management Fees for a Preliminary Claimant
will be the sum of the Monthly Loss from Management Fees across all
months of the Relevant Period and across all Funds held by the
Preliminary Claimant during the Relevant Period.

A Preliminary Claimant’s Recognized Loss will be the sum of the Recognized
Loss from Performance Fees and the Recognized Loss from Management Fees. If
the Recognized Loss calculates to a negative number, reflecting a gain, the
Recognized Loss will be $0.00.

To avoid payment of a windfall, the Recognized Loss will be reduced by 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.
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.
Additional Provisions
Allocation of Funds: The Net Available Fair Fund 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 awarded.
Pro Rata Percentage: A Pro Rata Percentage computation is intended to measure Eligible
Claimants’ Recognized Losses against one another. An Eligible Claimant’s Pro Rata Percentage
For example, if the Excess Profit Rate in a particular Fund in a particular month was 1% and the investor paid
$12,000 in performance fees in that month, the Monthly Loss from Performance Fees would be $120.
6
In some months for some Funds, the calculations returned a negative number reflecting an “underpayment” of
fees. In the Recognized Loss calculation, these underpayments offset the excess fees in other months. The same
treatment applies in paragraph C.2.
5

2

will be calculated as the ratio of his, her or its Recognized Loss to the sum of Recognized Losses
of all Eligible Claimants.
Reasonable Interest: 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.
Minimum Distribution Amount: The Minimum Distribution Amount will be $25.00. An
Eligible Claimant whose distribution amount is less than the Minimum Distribution Amount will
be deemed ineligible and their distribution amount will be reallocated on a pro rata basis to
Eligible Claimants whose distribution amounts are greater than or equal to the Minimum
Distribution Amount.
Payee: An Eligible Claimant whose distribution amount equals or exceeds the Minimum
Distribution Amount will be deemed a Payee.
Distribution Payment: Each Payee will receive a Distribution Payment equal to their calculated
distribution amount. In no event will a Payee receive from the Fair Fund more than their
Recognized Loss plus Reasonable Interest, if applicable.

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Source: Frix Law Library, https://www.frixlaw.com/law-library/documents/agency%3Asec%3Ae9cd93cd49860ff9. Public record. Not legal advice.