In the Matter of Gemini Fund Services, LLC
Admin. Proc. File No. 3-18348
On January 22, 2018, the Commission simultaneously instituted and settled a cease and desist proceeding (the “Order”) against Gemini Fund Services, LLC (“Gemini”). The proceeding arose out of Gemini’s role as fund administrator for a Massachusetts-based investment company called the GL Beyond Income Fund (the “GL Fund”). Gemini was responsible for calculating the GL Fund’s daily share price (also called a “net asset value” or “NAV”) and transmitting it to the investing public, via the NASDAQ securities exchange. From February 2013 to December 2014, the NAV that Gemini gave to NASDAQ was inflated because Gemini included in the NAV fake assets that were purportedly worth over $15 million but were actually worth nothing. Although Gemini did not know that these assets were fake at the time it was calculating the NAV, Gemini did know that, for months at a time, the GL Fund’s custodian bank (a financial institution that holds customers’ securities for safekeeping) did not have adequate proof of the existence of many of these fake assets, and that there were therefore significant discrepancies between Gemini’s own records and those of the custodian bank. When confronted with this fact, Gemini failed to take any further steps, such as further investigating the problem with the assets, notifying the investing public or the board of directors of the GL Fund that the custodian bank did not have proof of the validity of the assets, or reducing the share price to reflect this problem. The Commission ordered the Respondent to pay disgorgement of $147,334, prejudgment interest of $14,072, and a civil penalty of $400,000 to the Commission within 10 days of the entry of the OIP and created a Fair Fund pursuant to Section 308(a) of the Sarbanes-Oxley Act of 2002, as amended.
The Order further provided that after receipt of the disgorgement, interest, and penalty amounts referenced above, the Commission staff will distribute a payment to GL Fund of the amount in the Fair Fund minus a reserve for taxes and related administrative expenses. The Commission staff will issue payment to the GL Fund upon receipt of a certification: (i) that the distribution payment is designated solely for affected investors and will not be used for administrative or management fees; and (ii) that the GL Fund will make commercially reasonable efforts consistent with its legal, fiduciary, and contractual duties, as applicable, to disburse the Fair Fund payment to its victim investors in accordance with this Order. The Trustees of the GL Fund have agreed to make payments to those victim investors, provide a written report and evidence of such payments to Commission staff, and return any undistributed funds to the Commission. See the Commission’s Order: Release No. IA-4847.
On April 19, 2018, the Commission issued an order directing payment of the funds received from the Respondent and directing the transfer of the remaining funds to the U.S. Treasury. See the Commission’s Order: Release No. 34-83069.
Also on April 19, 2018, the Commission issued an order appointing Miller Kaplan Arase LLP as the Tax Administrator of the Fair Fund.