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U.S. Securities and Exchange Commission

UNITED STATES OF AMERICA
Before the
SECURITIES AND EXCHANGE COMMISSION

Securities Act of 1933
Release No. 7727 / August 19, 1999

Securities Exchange Act of 1934
Release No. 41761 / August 19, 1999

Investment Company Act of 1940
Release No. 23952 / August 19, 1999

Administrative Proceeding
File No. 3-9788

In the Matter of

MICHAEL P. TRABA,
Respondent.

ORDER MAKING FINDINGS AND
IMPOSING REMEDIAL SANCTIONS

I.

On December 10, 1998, the Securities and Exchange Commission ("Commission") deemed it appropriate and in the public interest to institute proceedings pursuant to Section 8A of the Securities Act of 1933 ("Securities Act"), Sections 15(b) and 21C of the Securities Exchange Act of 1934 ("Exchange Act"), and Sections 9(b) and 9(f) of the Investment Company Act of 1940 ("Investment Company Act") against Michael P. Traba ("Traba").

In response to the institution of these proceedings, Traba has submitted an Offer of Settlement ("Offer") which the Commission has determined to accept. Solely for the purpose of these proceedings and any other proceedings brought by or on behalf of the Commission, or in which the Commission is a party, and without admitting or denying the allegations, findings of fact or conclusions of law contained herein, except for jurisdiction and the findings contained in Sections II.4. and II.18. which are admitted, Traba, by his Offer, consents to the issuance of this Order Making Findings and Imposing Remedial Sanctions.

II.

On the basis of this Order and the Offer submitted by Traba, the Commission makes the following findings:

  1. The First Prairie Cash Management Fund ("Cash Management Fund"), is an open-end, diversified, management investment company, marketed as a money market fund. The Cash Management Fund has been registered with the Commission as an investment company since September 6, 1991.

  2. The First Prairie Money Market Fund is an open-end, diversified, management investment company comprised of two portfolios, the Money Market Series (the "MM Series Fund") and the Government Series Fund. The First Prairie Money Market Fund has been registered with the Commission as an investment company since January 29, 1985.

  3. From at least January 1993 through at least October 1994, The First National Bank of Chicago ("First Chicago"), a wholly owned subsidiary of First Chicago Corporation, served as the investment adviser to the Cash Management Fund and the MM Series Fund (collectively the "Funds") through its Investment Management Group, a division of First Chicago's Trust Department. As a bank, First Chicago was not subject to registration or regulation as an investment adviser.

  4. Traba was associated with First Chicago Investment Services, Inc., a registered broker-dealer, from March, 1979, until October, 1994. From at least January until August 1993, Traba was employed by First Chicago as a senior portfolio manager. From at least August 1993 until October 1994, Traba was employed by First Chicago as a senior fixed income portfolio manager in the Investment Management Group of First Chicago's Trust Department.

  5. While senior portfolio manager, Traba was responsible for managing the Funds. As a senior fixed income portfolio manager, Traba continued to act as the portfolio manager for the Funds and continued to be responsible for managing the Funds.

  6. At all relevant times, the Funds were marketed as money market funds, seeking to maintain a stable net asset value ("NAV") per share and valuing their portfolio securities at amortized cost, as permitted by Rule 2a-7 under the Investment Company Act of 1940 ("Investment Company Act").

  7. Between March and August 1993, Traba caused the Cash Management Fund to purchase for its portfolio two adjustable-rate derivative securities known as structured notes ("derivatives"). As of October 1993, the total face value of these two derivatives was $35 million. Between March and April 1993, Traba caused the MM Series Fund to purchase for its portfolio two derivatives. As of October 1993, the total face value of these two derivatives was $15 million. The market value of the derivatives had the potential to move substantially away from par.

  8. Between February and May 1994, the Federal Reserve raised the Federal funds rate four times, from 3% to 4.5%. During this time period, the market value of the derivatives fell substantially.

  9. Between February and May 1994, Traba instructed the Funds' administrator to value the derivatives at amortized cost for purposes of calculating the Funds' NAV. In addition, based on Traba's instruction, the market value of the derivatives was recorded on the Funds' daily pricing sheets at amortized cost. The continued use of amortized cost in the face of the steep market decline for these instruments was inconsistent with Rule 2a-7's requirement that the deviation between amortized cost and market value of a money market fund's portfolio be tracked using market quotations (or an appropriate substitute). Traba knew, or was reckless in not knowing, that the market value of the derivatives was substantially lower than their amortized cost.

  10. As a result, during this time period, the Funds sold and redeemed shares at the price of $1.00 per share, when in fact, the Funds were no longer eligible to rely on Rule 2a-7 to price their shares using amortized cost instead of current net asset value. The MM Series Fund broke the dollar (the NAV fell below the fixed $1.00 per share price) on at least March 15, March 31, April 15, April 29, May 31, and June 15, 1994. The Cash Management Fund broke the dollar on at least April 4 and 5, 1994.

  11. Between about June 25 and August 4, 1994, Traba caused the derivatives to be sold out of the Funds and into approximately four commingled trust accounts at First Chicago at materially inflated prices.

  12. Between September 23 and September 27, 1994, Traba caused one of the derivatives to be sold from a commingled trust account into a First Chicago custody account (the "Custody Account") at a materially inflated price. On the same day, Traba caused this derivative to be sold out of the Custody Account at its then current market value. During this same time period, Traba caused the Custody Account to purchase a Tennessee Valley Authority Note ("TVA Note") at its then current market value. On the same day, Traba caused the TVA Note to be sold from the Custody Account into a commingled trust account at a materially inflated price.

  13. Between October 4 and October 5, 1994, Traba caused another one of the derivatives to be sold from a commingled trust account into the Custody Account at a materially inflated price. On the same day, Traba caused this derivative to be sold out of the Custody Account at its then current market value. During this same time period, Traba caused the Custody Account to purchase a TVA Note at its then current market price. On the same day, Traba caused the TVA Note to be sold from the Custody Account into a commingled trust account at a materially inflated price.

  14. Traba willfully violated Section 34(b) of the Investment Company Act and willfully aided and abetted and caused violations of Section 31(a) and Rule 31a-1 of the Investment Company Act by making an untrue statement of material fact, or omitting to state a material fact that renders a stated fact misleading, in documents required to be kept under the Investment Company Act, as set forth in paragraph II. 9. above.

  15. Traba willfully aided and abetted and caused violations of Rule 22c-1 under Section 22(c) of the Investment Company Act in that, on at least March 15, March 31, April 15, April 29, May 31, and June 15, 1994, the MM Series Fund sold or redeemed Fund shares at a price not based on the accurate current net asset value of such shares; and on at least April 4 and 5, 1994, the Cash Management Fund sold or redeemed Fund shares at a price not based on the accurate current net asset value of such shares, as set forth in paragraphs II. 6. through II. 10., above.

  16. Traba willfully violated Section 17(a) of the Securities Act of 1933 ("Securities Act") in that, directly or indirectly, in the offer and sale of the derivatives and TVA Notes, by the use of the means and instruments of transportation and communication in interstate commerce or by the use of the mails, he: (i) employed devices, schemes or artifices to defraud; or (ii) obtained money and property by means of untrue statements of material facts and omitted to state material facts necessary in order to make the statements made, in the light of the circumstances under which they were made, not misleading; or (iii) engaged in transactions, practices, and courses of business which operated, or would operate, as a fraud or deceit upon the purchasers of such securities. As part of this conduct, Traba engaged in the conduct set forth in paragraphs II. 11. through II. 13., above.

  17. Traba willfully violated Section 10(b) of the Securities Exchange Act of 1934 ("Exchange Act") and Rule 10b-5 thereunder in that, directly or indirectly, in connection with the purchase and sale of the derivatives and TVA Notes, by the use of the means and instrumentalities of interstate commerce or by the use of the mails, he: (i) employed devices, schemes or artifices to defraud; (ii) made untrue statements of material facts and omitted to state material facts necessary in order to make the statements made, in the light of the circumstances under which they were made, not misleading; and (iii) engaged in acts, practices, and courses of business which operated, or would operate, as a fraud or deceit. As part of this conduct, Traba engaged in the conduct set forth in paragraphs II. 11. through II. 13., above.

  18. Traba has entered into a settlement agreement with the Office of the Comptroller of the Currency where, without admitting or denying the allegations, he has agreed to the entry of an order prohibiting him from participating in the conduct of the affairs of an insured depository institution and ordering the payment of a $15,000 civil money penalty.

III.

Accordingly, IT IS HEREBY ORDERED that:

  1. Traba cease and desist from committing or causing violations and any future violations of Section 17(a) of the Securities Act, Section 10(b) of the Exchange Act and Rule 10b-5 thereunder, and Section 34(b) of the Investment Company Act, and from causing violations and any future violations of Section 31(a) and Rules 22c-1 and 31a-1 of the Investment Company Act;

  2. Traba be, and hereby is, barred from association with any broker, dealer, or investment company;

  3. Traba shall pay a civil money penalty in the amount of $15,000 to the United States Treasury. $7,500 shall be paid within ten days of the entry of this order, $3,750 shall be paid within 45 days of the entry of this order, and the remaining $3,750 shall be paid within 90 days of the entry of this order. Such payments 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 mailed to the Comptroller, Securities and Exchange Commission, Operations Center, 6432 General Green Way, Stop 0-3, Alexandria, VA 22312; and (D) submitted under cover latter that identifies Traba as the 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 Christine Berry, Securities and Exchange Commission, 500 West Madison, Suite 1400, Chicago, Illinois 60661.

By the Commission.

Jonathan G. Katz

Secretary

http://www.sec.gov/litigation/admin/34-41761.htm


Modified:08/20/1999