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======