Banc One Investment Advisors Corporation Agrees to Pay $50 Million to Settle SEC Fraud Charges for Market-Timing Abuses

[3511@37.com]

Wednesday, June 30, 2004
 American Business News Vol. 1, No.87
 ISSN 1548-1255
 http://abnews.us/en.htm

Banc One Investment Advisors Corporation Agrees to Pay $50 Million to Settle SEC Fraud Charges for Market-
Timing Abuses

 

Washington, D.C., June 30 -- The Securities and Exchange Commission announced yesterday a settled 
enforcement action against Banc One Investment Advisors Corporation (BOIA), a registered investment adviser 
based in Columbus, Ohio, and Mark A. Beeson, age 46, of Westerville, Ohio, former President and CEO of One 
Group Mutual Funds (One Group) and Senior Managing Director of BOIA. 

The Commission ordered BOIA to pay disgorgement of $10 million and a civil penalty of $40 million and ordered 
Beeson to pay a civil penalty of $100,000. BOIA also consented to a cease-and-desist order and a censure, and 
agreed to undertake certain compliance and mutual-fund governance reforms. In addition, Beeson consented to a 
two-year bar from the mutual-fund industry and a three-year prohibition on serving as an officer or director of a 
mutual fund or investment adviser. 

Stephen M. Cutler, Director of the SEC's Division of Enforcement, said, they allowing Stern to market time in One 
Group funds, and by providing him with information about the funds confidential portfolio holdings, Banc One and 
Mark Beeson blatantly disregarded the well-being of One Group funds long-term shareholders. Today's sanctions 
show that the Commission continues to aggressively pursue mutual-fund advisers and their senior management 
when they place their own interests above those of fund investors. 

The Commission found that BOIA violated, and Beeson aided and abetted and caused violations of, the federal 
securities laws by: (1) allowing excessive short-term trading in One Group funds by hedge-fund manager Edward J. 
Stern in the hope of attracting additional business, which created a conflict of interest because the trading 
increased BOIA's advisory fees but was potentially harmful to One Group funds; (2) failing to charge Stern 
redemption fees as required by One Group's international-fund prospectuses when other investors were charged 
the redemption fees; (3) having no written procedures in place to prevent the nonpublic disclosure of One Group 
portfolio holdings and improperly providing confidential portfolio holdings to Stern when other shareholders were not 
provided the same information; and (4) causing One Group funds to participate in joint transactions (a BOIA 
affiliate loaned money to Stern for the purpose of market-timing), raising a conflict of interest. The Commission 
also found, among other things, that BOIA allowed excessive short-term trading in One Group funds by a Michigan 
market timer in violation of fund prospectuses and failed to collect required redemption fees from a Texas hedge 
fund. 

The Commission ordered BOIA to pay disgorgement of $10 million and a civil penalty of $40 million and ordered 
Beeson to pay a civil penalty of $100,000. BOIA also consented to a cease-and-desist order and a censure, and 
agreed to undertake certain compliance and mutual-fund governance reforms. In addition, Beeson consented to a 
two-year bar from the mutual-fund industry and a three-year prohibition on serving as an officer or director of a 
mutual fund or investment adviser. 

Robert J. Burson, Senior Associate Regional Director of the SEC's Midwest Regional Office, stated, "This case 
sends the message that mutual-fund advisers cannot tell investors one thing and then do another. One Group's 
prospectuses clearly forbade market timing but BOIA and Beeson allowed it anyway.

In the Order, the Commission found that: 

1.       The One Group's fund prospectuses stated that One Group restricted excessive exchange activity in all 
One Group funds. BOIA enforced those provisions. But despite the prospectuses language, Beeson entered into 
an agreement with Stern through which Stern executed approximately 300 exchange transactions within certain 
One Group funds. This agreement was made in the hope that it would lead to additional business from Stern for 
various BOIA affiliates. The transactions, which occurred between June 2002 and May 2003, earned Stern a profit 
of approximately $5.2 million. 

2.       In connection with transactions in One Group international funds, BOIA and Beeson failed to charge Stern 
approximately $4 million in redemption fees, as required by those funds prospectuses. 

3.       Despite the language of the One Group's fund prospectuses, from June 1999 to December 2001, BOIA 
allowed a Michigan market timer to execute approximately 100 exchange transactions in One Group international 
funds, resulting in a profit to the market timer of approximately $1.24 million. 

4.       In March 2003, BOIA allowed a Texas hedge fund to execute two exchange transactions in One Group 
international funds without collecting approximately $840,000 in redemption fees required by the prospectuses. 

5.       Beeson provided listings of the confidential portfolio holdings of several One Group funds to Stern when that 
information was not provided to the public, to the possible detriment of the funds and their shareholders. 

6.       BOIA provided listings of the confidential portfolio holdings of many One Group funds to favored clients (
including Stern), prospective clients, and consultants when that information was not provided to the public, to the 
possible detriment of the funds and their shareholders. 

7.       BOIA and Beeson caused certain One Group funds to enter into joint arrangements whereby Bank One 
loaned money to Stern with the express understanding that the loan proceeds would be invested in One Group 
funds. In addition, Bank One loaned money to a Michigan market-timer to market-time mutual funds. Bank One 
earned interest on those loans and BOIA generated mutual-fund sales and associated fees by allowing approved 
timing activity in One Group funds. By contrast, the affected One Group funds obtained little or no benefit from 
this unauthorized activity. 

The Commission's Order further finds that BOIA willfully violated, and Beeson aided and abetted and caused 
violations of, Sections 204A, 206(1), and 206(2) of the Investment Advisers Act and Sections 17(d) and 34(b) of 
the Investment Company Act and Rule 17d-1 thereunder, and requires them to cease and desist from violating 
these provisions. BOIA and Beeson consented to the entry of the Commission's Order without admitting or 
denying the findings.

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