(CN) - Evergreen Investment Management Co. will pay $40 million for overstating the value of a mutual fund that invested primarily in mortgage-backed securities while telling only select shareholders about the fund's valuation problems, the SEC said on Monday.
Evergreen agreed to settle without admitting or denying the charges.
The SEC found that Evergreen's advisory arm and its distributor, Evergreen Investment Services, misrepresented the value of the Ultra Short Opportunities Fund. The fund consistently ranked as a high performer in 2007 and 2008 because it was inflated by as much as 17 percent due to Evergreen's improper valuation practices, says the SEC.
The SEC found that had the fund been properly valued, it would have ranked near the bottom of its category. The SEC says Evergreen overstated the fund's value by ignoring readily available information about mortgage-backed securities.
Only select shareholders were informed of the true value of the fund; they were able to cash out before losing more while others were kept in the dark, the SEC says.
Evergreen closed the Ultra Fund in June 2008 in the wake of substantial redemptions by fund shareholders following the firm's re-pricing of the fund's holdings.
Most of the settlement money will go to compensate shareholders.
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