SALT LAKE CITY (CN) – Two managers of the so-called Tax Free Fund for Utah will cough up $714,478 in disgorgement and penalties after charging municipal bond issuers more than $500,000 in undisclosed “credit monitoring fees,” the SEC says in settled complaints. Kimball Young of Salt Lake City and Thomas Albright of Louisville agreed to the sanctions and penalties but do not admit they did anything wrong.
Young and Albright were portfolio managers for the Tax Free Fund for Utah while they worked at Aquila Investment Management LLC, the SEC said in a statement announcing the settlements. The SEC said the men “improperly charged municipal bond issuers more than a half-million dollars in undisclosed ‘credit monitoring fees’ that they pocketed for themselves.”
Citing its own administrative orders, the SEC said that “Young and Albright began charging municipal bond issuers ‘credit monitoring fees’ in 2003 on certain private placement and non-rated bond offerings without informing Aquila management or the TFFU’s board of trustees. The fees, which ranged between 0.5 and 1 percent of each bond’s par value, were a onetime fee purportedly to compensate Young and Albright for performing additional ongoing credit monitoring that they contend was required because the bonds were not rated.
“The SEC found that, in fact, any credit monitoring work that Young and Albright performed was already part of their regular job responsibilities. Although deal documents indicated that the fees were required by and would be paid to the TFFU, the fees were instead wired to a company controlled by Young, who shared them equally with Albright. The fees totaled $520,626 from 2003 to April 2009, including $256,071 for the year 2008 alone.”
The SEC added that “Aquila management learned in April 2009 that Young and Albright had been charging credit monitoring fees, at which point Aquila promptly suspended Young and Albright and reported their conduct to the SEC.”
Finally, the SEC said, “Young and Albright settled the charges without admitting or denying the SEC’s findings. Young agreed to pay $294,789 in disgorgement and prejudgment interest and a $75,000 penalty, and to be barred for 5 years from association with any investment adviser, broker, dealer, or certain other entities and industry organizations. Albright agreed to pay $294,789 in disgorgement and prejudgment interest and a $50,000 penalty, and to be barred for 1 year from association with any investment adviser, broker, dealer, or certain other entities and industry organizations.”