What is Cowell paying this company to do? By paying this company, she violates the Prudent Investor Act.
UNITED STATES OF AMERICA
Before the
SECURITIES AND EXCHANGE COMMISSION
Securities Exchange Act of 1934
Release No. 39034 / September 9, 1997
Investment Company Act of 1940
Release No. 22813 / September 9, 1997
Investment Advisers Act of 1940
Release No. 1660 / September 9, 1997
Administrative Proceeding
File No. 3-9395
:
In the Matter of : ORDER INSTITUTING PUBLIC
: PROCEEDINGS PURSUANT TO
: SECTIONS 9(b) and 9(f) OF
FRANK P. MEADOWS, III, and : THE INVESTMENT COMPANY ACT
THE NOTTINGHAM COMPANY, INC. : OF 1940, SECTIONS 15(b),
d/b/a THE NOTTINGHAM MANAGEMENT : 17A AND 19(h) OF THE
COMPANY, INC., d/b/a TNC, INC., : SECURITIES EXCHANGE ACT
d/b/a F.P. MEADOWS & COMPANY, : OF 1934, AND
and d/b/a THE NOTTINGHAM COMPANY, : SECTION 203(f) OF THE
: INVESTMENT ADVISERS ACT OF
: 1940, MAKING FINDINGS AND
Respondents. : IMPOSING REMEDIAL RELIEF
: AND MONETARY PENALTIES,
: AND CEASE-AND-DESIST
: ORDER
:
I.
The Commission deems it appropriate and in the public interest that
public administrative proceedings: 1) pursuant to Sections 9(b) and 9(f) of
the Investment Company Act of 1940 ("ICA"), Sections 15(b), 17A and 19(h)
of the Securities Exchange Act of 1934 ("Exchange Act"), and Section 203(f)
of the Investment Advisers Act of 1940 ("Advisers Act") be, and they hereby
are, instituted against Frank P. Meadows, III ("Meadows"); and 2) pursuant
to Sections 9(b) and 9(f) of the ICA and Section 17A of the Exchange Act
be, and they hereby are, instituted against The Nottingham Company, Inc.
d/b/a The Nottingham Management Company, Inc., d/b/a TNC, Inc., d/b/a F.P.
Meadows & Company, and d/b/a The Nottingham Company ("Nottingham").
II.
In anticipation of the institution of these administrative
proceedings, Meadows and Nottingham have submitted an Offer of Settlement,
which the Commission has determined to accept. Solely for the purpose of
these proceedings, and any other proceeding brought by or on behalf of the
Commission or to which the Commission is a party, Meadows and Nottingham,
without admitting or denying the findings set forth herein except those
pertaining to the jurisdiction of the Commission over the respondents and
over the subject matter of these proceedings which are admitted, consent to
the entry of this Order Instituting Public Administrative Proceedings: 1)
against Meadows pursuant to Sections 9(b) and 9(f) of the ICA, Sections
15(b), 17A and 19(h) of the Exchange Act, and Section 203(f) of the
Advisers Act; and 2) against Nottingham pursuant to Sections 9(b) and 9(f)
of the ICA and Section 17A of the Exchange Act; Making Findings and
Imposing Remedial Relief and Monetary Penalties, and Cease-and-Desist Order
("Order").
III.
Based on this Order and the Respondents' offer, the Commission finds
<(1)> the following:
1. The Nottingham Company, Inc. has been registered with the
Commission as a transfer agent since August 6, 1991. At various times,
operations of Nottingham were conducted under various names and were
referred to in various official documents as being conducted by: The
Nottingham Company, Inc., The Nottingham Management Company, Inc., TNC,
Inc., F.P. Meadows & Company, and The Nottingham Company. These operations
are referred to herein individually and collectively as those of
"Nottingham." Nottingham was, at all relevant times, engaged in the
business of providing administrative services, including recordkeeping
services, to investment companies.<(2)>
2. Frank P. Meadows, III ("Meadows") was, at all relevant times, an
officer and trustee of the investment companies referred to in this Order
and was the president and managing director of Nottingham. F.P. Meadows &
Company ("Meadows & Company") was, at all relevant times, the parent
company of Nottingham. At all relevant times, Meadows controlled Meadows &
Company and its pension plan. At all relevant times, Meadows was
associated with registered broker-dealers. Meadows is presently associated
with one registered investment adviser.
THE $18,456.93 RECEIVABLE OWED BY
NOTTINGHAM TO A FUND FOR WHICH
IT SERVED AS ADMINISTRATOR
<(1)> The findings herein are made pursuant to an Offer of
Settlement of Meadows and Nottingham and are not
binding on any other person or entity named as a
respondent in this or any other proceeding.
<(2)> The registered investment companies referred to in this
Order are referred to individually or collectively as
"Trusts." Various portfolios of those investment
companies are also referred to in this Order and are
referred to individually or collectively as "Funds."
======END OF PAGE 2======
3. In or about the fiscal year ended March 31, 1992, accounting
errors by Nottingham staff relating to paydowns of principal on certain
mortgage-backed securities owned by a Fund administered by Nottingham
resulted in several incorrect daily calculations of the net asset value of
the Fund. These errors in turn caused the Fund to incur losses of
$18,456.93 in connection with sales and redemptions of its shares.
Subsequently, Meadows agreed that Nottingham would reimburse the Fund for
the losses. However, instead of immediately paying the Fund with cash,
Meadows, on or about June 18, 1992, directed that the Fund's accounting
records reflect an $18,456.93 receivable from Nottingham.
4. On or about November 25, 1992, Meadows directed that the
receivable of $18,456.93 owed to the Fund by Nottingham be removed from the
general ledger of the Fund and directed that an offsetting debit entry be
placed in the prior year undistributed capital gains account of the Fund's
general ledger. Meadows did not in November, 1992, pay the $18,456.93
receivable to the Fund.
5. The next year, during their fiscal year 1993 audit of the Fund,
the auditors of the Fund noticed that the $18,456.93 receivable was no
longer reflected in the records of the Fund and asked Meadows what had
happened to it. Meadows responded that the amount had been paid. The
auditors attempted to confirm the payment but no confirmation could be
found. When the auditors again questioned Meadows, Meadows stated to the
auditors that the receivable had been satisfied through an entry involving
principal paydowns on four mortgage-backed securities owned by the Fund.
The auditors subsequently confirmed that the receivable had been removed
from the Fund's books, without payment and determined that there was no
legitimate entry removing the receivable. The auditors re-established the
receivable on the books of the Fund as an asset at March 31, 1993.
6. In or about May, 1993, before agreeing to issue an opinion on the
Fund's financial statements, the auditors insisted that the $18,456.93
receivable to the Fund be paid. In response to this demand, Meadows sent
to the auditors a report from the Fund's custodian bank showing a deposit
of $18,456.93 into the Fund's bank account on or about May 13, 1993.
Meadows told the auditors that this report documented payment of the
$18,456.93 receivable. On the basis of this documentation and
representation, the auditors issued their opinion.
7. Meadows did not tell the auditors that on or about May 13, 1993,
he also directed that two withdrawals, which together totaled $18,456.93,
be made from the Fund's bank account and deposited back into a Nottingham
bank account.
RESPONDENTS TAKE $7,475.55 FROM ONE FUND TO PAY EXPENSES
OF THREE OTHER FUNDS FOR WHICH NOTTINGHAM SERVED
AS ADMINISTRATOR
8. In or about February, 1993, Meadows directed that $7,475.55 be
transferred from one Fund for which Nottingham served as administrator to
pay expenses of three other Funds for which Nottingham served as
======END OF PAGE 3======
administrator. The general ledger of the Fund from which the money was
taken reflects that on February 25, 1993, $7,475.55 was transferred out of
the Fund in a transaction noted as "short term transfer (TNC expenses)."
The offsetting entry falsely described the $7,475.55 transfer as being for
"deferred organizational expense" of the Fund, when in fact the transferred
monies were used to pay expenses of three other Funds.
9. The $7,475.55 was repaid on or about March 12, 1993, after the
investment adviser to the Fund discovered the transfer and demanded that
the funds be returned.
RESPONDENTS DID NOT TIMELY PAY FOR $25,715.80
WORTH OF SHARES IN FIVE FUNDS
10. In or about February 1993, Meadows, on behalf of a pension plan
which he controlled and of which he was a beneficiary, acquired shares of
five of the Funds for which Nottingham was administrator. Meadows did not
cause the pension plan to transfer cash to the five Funds in payment of
these shares. Rather, Meadows directed the appropriate fund accounts at
Nottingham to establish shareholder purchase receivables on the books of
each of the Funds.
11. After the custodian of the pension plan requested that the
purchase of the shares by the plan flow through the books of the custodian,
on or about February 17, 1993, Meadows directed that a total of $25,715.80
be withdrawn from the five Funds' custodial accounts and be deposited into
Nottingham's expense checking account, a conduit expense account that was
typically used as a vehicle for paying expenses of Funds for which
Nottingham served as administrator. Meadows then caused to be sent to the
pension plan custodian a check drawn on the Nottingham expense checking
account for the total amount of the pension plan purchases, $25,715.80.
The pension plan custodian then sent the respective purchase amounts back
to the Funds' accounts at the custodian banks. Notwithstanding this
movement of funds, the general ledgers of each of the five Funds still
showed shareholder purchase receivables as assets of the Funds as of March
31, 1993.
12. On or about May 28, 1993, Meadows made or caused to be made, a
series of entries in the general ledgers of the Funds, the shares of which
had been acquired by the pension plan, the effect of which was to remove
receivables which had not been paid.
13. As part of this conduct, Meadows removed or caused to be removed,
shareholder receivables of $7,714.74 due two of the Funds by recording
offsetting debits to the current year undistributed capital accounts of
each Fund for "short-short term realized gains." Notwithstanding that no
cash had been paid for these receivables, Meadows later directed that
entries to the short-short term realized gains account be deleted and
replaced with debits to the "cash-in-bank" accounts of these Funds.
Nottingham staff were then directed to remove all computer reports which
showed the debits to the short-short term realized gains accounts from
records of the Funds. Most of these reports were destroyed. Payment for
the shares of one of these Funds was subsequently made on July 15, 1993.
======END OF PAGE 4======
Payment for the shares of the other Fund was subsequently made on August
31, 1993.
14. On or about May 28, 1993, Meadows removed or caused to be
removed, the shareholder purchase receivable of $1,285.79 which was owed to
the third of the Funds and entered an offsetting entry to that Fund's
administrative fee expense account at a time when the books and records of
the Fund did not indicate that an administrative fee in such an amount was
owed to Nottingham.
15. On or about May 28, 1993, Meadows removed or caused to be
removed, the shareholder purchase receivable of $3,857.37 which was owed to
the fourth of the Funds and entered an offsetting entry to that Fund's
administrative fee expense account at a time when the books and records of
the Fund did not indicate that an administrative fee in such an amount was
owed to Nottingham.
16. On or about May 28, 1993, Meadows removed or caused to be
removed, the shareholder purchase receivable of $5,143.16 which was owed to
the fifth of the Funds and entered an offsetting entry against
administrative fees the Fund owed to Nottingham.
17. During the period from in or about January 1994 through May 1994,
through the actions of Meadows and Nottingham, the Funds failed to produce
for examination by representatives of the Commission minutes of the Funds'
board of trustees meetings and other books and records.
18. During the period from November 1992 through October 1993,
Meadows and Nottingham willfully violated Section 34(a) of the ICA, by
destroying and altering accounts, books, and other documents the
preservation of which is required by Section 31(a) of the ICA, as more
particularly described in paragraphs 3-16, above.
19. During the period from November 1992 through October 1993,
Meadows and Nottingham willfully violated Section 34(b) of the ICA by
making untrue statements of material facts in accounts, records, and other
documents the keeping of which is required pursuant to Section 31(a) of the
ICA, and omitting to state therein facts necessary in order to prevent the
statements made therein, in light of the circumstances under which they
were made, from being materially misleading, as more particularly described
in paragraphs 3-16, above.
20. During the period from November 1992 through October 1993,
Meadows willfully violated Section 37 of the ICA by unlawfully converting
to the use of others, the moneys, securities, credits, property, and assets
of registered investment companies, as more particularly described in
paragraphs 3-16, above.
21. During the period from June 1992 through October 1993, Nottingham
willfully violated Section 17(a)(3) of the ICA by borrowing money and other
property from registered investment companies, acting as principal, and
Meadows and Nottingham willfully aided and abetted violations of Section
======END OF PAGE 5======
17(a)(3) of the ICA, while Meadows was an affiliated person of the
registered investment companies and while Nottingham and the pension plan
were affiliated persons of Meadows, as more particularly described in
paragraphs 3-7 and 10-16, above.<(3)>
22. During the period from February 1993 through November 1993,
Meadows and Nottingham willfully aided and abetted violations of Section
22(g) of the ICA when, through the actions of Meadows and Nottingham,
registered open-end investment companies administered by Nottingham issued
securities for services and for property other than cash and securities,
not involving a dividend or distribution to security holders and not in
connection with a reorganization, as more particularly described in
paragraph 10, above.
<(3)> Section 2(a)(3) of the ICA defines the term "affiliated
person" to include any officer or director of such
other person as well as any person directly or
indirectly controlling, controlled by, or under common
control with, such other person. Meadows, as the
treasurer and a director/trustee of each of the
investment companies involved in these violations, was
an affiliated person of those entities. Both
Nottingham and the pension plan were controlled by
Meadows and were therefore affiliated persons of an
affiliate of each ofthe relevant investment companies.
======END OF PAGE 6======
23. During the period from January 1994 through May 1994, Meadows and
Nottingham willfully aided and abetted violations of Section 31(b) of the
ICA, when, through the actions of Meadows and Nottingham, Funds failed to
produce for examination by representatives of the Commission, certain
accounts, books and other records, required to be maintained and preserved
by Section 31(a) of the ICA by investment companies with which Nottingham
had contracted to provide administrative services, including recordkeeping
services, as more particularly described in paragraph 17 above.
24. During the period from November 1992 through January 1994, as
described in paragraphs 3-16 above, Meadows and Nottingham willfully aided
and abetted violations of Section 31(a) of the ICA and Rule 31a-2
thereunder, in that, through the actions of Meadows and Nottingham,
registered investment companies administered by Nottingham:
(a) failed to preserve permanently certain books and records
required to be made pursuant to paragraphs 1 through 4 of Rule 31a-1(b),
including: journals containing an itemized daily record in detail of all
receipts and disbursements of cash and other debits and credits; and
general and auxiliary ledgers reflecting all asset, liability, reserve,
capital, income and expense accounts, as required by Rule 31a-2(a)(1);
(b) failed to preserve for a period not less than 6 years from
the end of the fiscal year in which any transaction occurred, certain
books and records required to be made pursuant to paragraphs 5
through 12 of Rule 31a-1(b), including: all minute books of trustees'
meetings and of trustees' committee meetings and all schedules
evidencing and supporting each computation of net asset value of
investment company shares, as required by Rule 31a-2(a)(2); and
(c) failed to preserve for a period not less than 6 years certain
memoranda and correspondence, as required by Rule 31- 2(a)(2).
IV.
In view of the foregoing, the Commission deems it appropriate and in
the public interest to impose the sanctions specified in the Respondents'
Offer.
ACCORDINGLY, IT IS HEREBY ORDERED:
1. Pursuant to Section 9(f) of the ICA, that Meadows cease and
desist from committing or causing any violation and any future
violation of Sections 17(a)(3), 34(a), 34(b) and 37 of the ICA and
from causing any violation and any future violation of Sections 22(g),
31(a) and 31(b) of the ICA and Rule 31a-2 thereunder;
2. Pursuant to Section 9(f) of the ICA, that Nottingham cease
and desist from committing or causing any violation and any future
violation of Sections 17(a)(3), 34(a) and 34(b) of the ICA and from
causing any violation and any future violation of Sections 22(g),
31(a) and 31(b) of the ICA and Rule 31a-2 thereunder;
======END OF PAGE 7======
3. Pursuant to Section 9(d) of the ICA, that Meadows shall,
within ninety (90) days of the date of the Commission's Order, pay a
civil money penalty in the amount of thirty five thousand dollars
($35,000.00) to the United States Treasury. Such payment shall be:
(A) made by United States postal money order, certified check, bank
cashier's check, or bank money order; (B) made payable to the
Securities and Exchange Commission; (C) hand delivered or by overnight
courier to the Comptroller, Securities and Exchange Commission, 450
Fifth Street, N.W., Washington, D.C. 20549; and (D) submitted under
cover letter that identifies Meadows as a Respondent in these
proceedings, the file number of these proceedings, a copy of which
cover letter and money order or check shall be sent to James E. Long,
Securities and Exchange Commission, Atlanta District Office, 3475
Lenox Road, Suite 1000, Atlanta, Georgia 30326-1232;
4. Pursuant to Section 9(d) of the ICA, that Nottingham shall,
within fifteen (15) days of the date of the Commission's Order, pay a
civil money penalty in the amount of fifteen thousand dollars
($15,000.00) to the United States Treasury. Such payment shall be:
(A) made by United States postal money order, certified check, bank
cashier's check, or bank money order; (B) made payable to the
Securities and Exchange Commission; (C) hand delivered or by overnight
courier to the Comptroller, Securities and Exchange Commission, 450
Fifth Street, N.W., Washington, D.C. 20549; and (D) submitted under
cover letter that identifies Nottingham as a Respondent in these
proceedings, the file number of these proceedings, a copy of which
cover letter and money order or check shall be sent to James E. Long,
Securities and Exchange Commission, Atlanta District Office, 3475
Lenox Road, Suite 1000, Atlanta, Georgia 30326-1232; and
5. Pursuant to Sections 15(b), 17A and 19(h) of the Exchange
Act, Section 203(f) of the Advisers Act and Section 9(b) of the ICA,
that, effective immediately, Meadows be barred from association with
any investment company, investment adviser, broker, dealer, municipal
securities dealer, or transfer agent, with the right to reapply after
======END OF PAGE 8======
eighteen months to the appropriate self-regulatory organization, or if
there is none, to the Commission.
By the Commission.
Jonathan G. Katz
Secretary
======END OF PAGE 9======
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