Advisers Settle With|SEC for $47 Million

WASHINGTON (CN) – The SEC charged two investment firms and two managers with failing to inform investors about risky derivative strategies that cost a fund $70 million and made it collapse during the financial crisis.
     The SEC sued Claymore Advisors LLC; Mohammed Riad and Kevin Timothy Swanson; and Fiduciary Asset Management LLC, in separate filings on Wednesday.
     Claymore Advisors, of Lisle, Ill., agreed to repay $45 million to investors, the SEC said in a statement.
     Fiduciary Asset Management (FAMCO), a “sub-adviser” for Claymore, agreed to pay another $2 million in disgorgement and penalties, the SEC said.
     Riad, of Clayton, Mo., and Swanson, of St. Louis, did not settle.
     “An SEC investigation found that the Fiduciary/Claymore Dynamic Equity Fund (HCE) attempted two strategies to enhance returns – writing out-of-the money put options and shorting variance swaps,” the SEC said in a statement. “This exposed HCE to additional undisclosed risks and caused the fund to lose more than $45 million in September and October 2008, which was approximately 45 percent of its net assets. The fund liquidated in 2009.”
     The SEC added: “FAMCO managed HCE in a manner that was inconsistent with the fund’s registration statement. Through the portfolio managers, FAMCO made misleading statements about HCE’s performance, omitting discussion of contributions from the put-writing and variance swap strategies. FAMCO also made misleading statements about HCE’s exposure to downside risk. Investors in HCE lost $45,396,878 as a result of this riskier trading, and the fund lost $70 million total (72.4 percent of its net asset value) during this period of general market decline.”

%d bloggers like this: