INVESTMENT ADVISERS ACT OF 1940
Release No. 2027 / April 12, 2002
INVESTMENT COMPANY ACT OF 1940
Release No. 25523 / April 12, 2002
SECURITIES EXCHANGE ACT OF 1934
Release No. 45743 / April 12, 2002
ADMINISTRATIVE PROCEEDING
File No. 3-10757
In the Matter of ND Money Management, Inc., Respondent. |
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ORDER INSTITUTING PROCEEDINGS PURSUANT TO SECTIONS 203(e), 203(f) AND 203(k) OF THE INVESTMENT ADVISERS ACT OF 1940, PURSUANT TO SECTIONS 9(b) AND 9(f) OF THE INVESTMENT COMPANY ACT OF 1940 AND PURSUANT TO SECTION 15(b) OF THE SECURITIES EXCHANGE ACT OF 1934, MAKING FINDINGS AND IMPOSING REMEDIAL SANCTIONS AND CEASE- AND-DESIST ORDERS |
I.
The United States Securities and Exchange Commission (the "Commission") deems it appropriate and in the public interest that administrative and cease-and-desist proceedings be instituted pursuant to Sections 203(e) and 203(k) of the Investment Advisers Act of 1940 (the "Advisers Act") and Sections 9(b) and 9(f) of the Investment Company Act of 1940 (the "Investment Company Act") against ND Money Management, Inc. ("ND Money Management"), pursuant to Sections 203(e) and 203(k) of the Advisers Act, Sections 9(b) and 9(f) of the Investment Company Act and Section 15(b) of the Securities Exchange Act of 1934 (the "Exchange Act") against Ranson Capital Corporation ("Ranson Capital"), and pursuant to Sections 203(f) and 203(k) of the Advisers Act, Sections 9(b) and 9(f) of the Investment Company Act and Section 15(b) of the Exchange Act against Robert E. Walstad ("Walstad") and Monte L. Avery ("Avery") (collectively "Respondents").
II.
In anticipation of the institution of these proceedings, Respondents have submitted Offers of Settlement ("Offers") that 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 findings, except those findings pertaining to the jurisdiction of the Commission over them and the subject matter of these proceedings, Respondents consent to the entry of the findings and the imposition of the remedial sanctions and cease-and-desist orders as set forth herein.
Accordingly, IT IS ORDERED that proceedings pursuant to Sections 203(e), 203(f) and 203(k) of the Advisers Act, pursuant to Sections 9(b) and 9(f) of the Investment Company Act and pursuant to Section 15(b) of the Exchange Act be, and hereby are, instituted.
III.
On the basis of this Order Instituting Proceedings, and the Offers submitted by Respondents, the Commission finds that:1
RESPONDENTS
A. ND Money Management has been registered with the Commission as an investment adviser pursuant to Section 203(c) of the Advisers Act since November 21, 1988. ND Money Management is a North Dakota corporation with headquarters in Minot, North Dakota. ND Money Management serves as an investment adviser to certain mutual funds.
B. Ranson Capital has been registered with the Commission as an investment adviser pursuant to Section 203(c) of the Advisers Act since August 1, 1990 and has been registered with the Commission as a broker-dealer pursuant to Section 15(b) of the Exchange Act since June 1, 1990. Ranson Capital is a Kansas corporation with headquarters in Minot, North Dakota. Ranson Capital serves as an investment adviser to certain mutual funds.
C. Walstad, a resident of North Dakota, has been a registered representative associated with several broker-dealers since 1972. He is currently associated with ND Capital, Inc. ("ND Capital"), Ranson Capital and ARM Securities Corporation, all registered broker-dealers, as a registered representative. Walstad has been the president, treasurer and a director of ND Money Management since its inception and the president, treasurer and a director of Ranson Capital since January 1996. Walstad directs the business and affairs of ND Money Management and Ranson Capital.
D. Avery, a resident of North Dakota, has been a registered representative associated with several broker-dealers since 1981. He is currently associated with ND Capital and Ranson Capital as a registered representative. Avery has held the title of Chief Portfolio Strategist for the mutual funds advised by ND Money Management and Ranson Capital (the "Funds") since at least 1997. In 1996, Avery co-managed the Funds.
FACTS
E. In several registration statements, which incorporated prospectuses and statements of additional information ("SAIs"), filed with the Commission from May 1, 1995 through October 1, 1999, the Funds set forth various investment restrictions which were to govern the Funds' investments. These restrictions were that: (1) one of the Funds would not hold more than 5% of its net assets in certificates of participation ("COPs"); (2) three of the Funds would not purchase unrated industrial development bonds; and (3) six of the Funds would not invest more than 5% of their total assets in another investment company and would not invest more than 10% of their total assets in two or more investment companies.
F. Between May 1, 1996 and at least December 31, 1998, one of the Funds held more than 5% of its net assets in COPs, contrary to the restriction set forth in the Fund's SAIs. Between December 2, 1996 and at least October 1, 1999, three of the Funds, at various times, purchased unrated industrial development bonds contrary to restrictions set forth in their prospectuses. From time to time, between May 1, 1996 and at least September 23, 1999, six of the Funds invested more than 5% of their total assets in another investment company contrary to restrictions set forth in their SAIs. During that time period, two of those Funds also invested more than 10% of their total assets in two or more investment companies contrary to restrictions set forth in their SAIs. The statements in the Funds' filings with the Commission, described above in paragraph E., were thus false and misleading at the time they were made or subsequently became false and misleading.
G. ND Money Management, Ranson Capital and the Funds all adopted the same Code of Ethics and Statement on Insider Trading (the "Code"), effective January 1, 1997. The Code required, among other things, that certain employees pre-clear all personal securities transactions, have duplicate confirmations sent to the compliance officer by their brokers and report their securities positions on a quarterly and annual basis. It also required the Funds and their advisers to inform the affected employees of these duties. Prior to August 1998, no required employee had duplicate confirmations sent to the compliance officer, nor did they pre-clear securities transactions. Several required employees did not report their securities transactions on a quarterly basis prior to August 1998.
VIOLATIONS OF SECTION 206(2) OF THE ADVISERS ACT
H. Section 206(2) of the Advisers Act prohibits an investment adviser from engaging in any transaction, practice, or course of business which operates as a fraud or deceit upon any client or prospective client.
I. ND Money Management and Ranson Capital willfully2violated and Walstad and Avery willfully aided and abetted and caused ND Money Management's and Ranson Capital's violations of Section 206(2) of the Advisers Act by failing to disclose that the Funds made investments which materially deviated from investment restrictions set forth in the Funds' respective prospectuses and SAIs.
VIOLATIONS OF SECTION 34(b) OF THE INVESTMENT COMPANY ACT
J. Section 34(b) of the Investment Company Act makes it unlawful for any person to, among other things, make any untrue statement of material fact in any registration statement required to be filed with the Commission, or to omit any fact necessary in order to prevent the statements made, in light of the circumstances under which they were made, from being materially misleading.
K. ND Money Management, Ranson Capital and Walstad willfully violated Section 34(b) of the Investment Company Act by filing several registration statements, incorporating prospectuses and SAIs, with the Commission which contained false statements about compliance with investment limitations, as set forth in paragraphs E. and F. above. Avery willfully aided and abetted and caused these violations by assisting the conduct that constituted the primary violations in that he authorized the securities transactions that caused the Funds' prospectuses to be misleading.
VIOLATIONS OF SECTION 12(d)(1)(A) OF THE INVESTMENT COMPANY ACT
L. In part, Section 12(d)(1)(A) of the Investment Company Act prohibits an investment company from acquiring any securities issued by another investment company if the acquiring investment company, immediately after such acquisition, owns in the aggregate (i) more than 3% of the total outstanding voting stock of the acquired company; (ii) securities issued by the acquired company having an aggregate value in excess of 5% of the value of the total assets of the acquiring company; or (iii) securities issued by the acquired company and all other investment companies (other than Treasury stock of the acquiring company) having an aggregate value in excess of 10% of the value of the total assets of the acquiring company.
M. ND Money Management, Ranson Capital and Walstad willfully aided and abetted and caused the Funds' violations of Section 12(d)(1)(A) of the Investment Company Act by acquiring for the Funds the securities of another investment company the value of which exceeded 5% of the Funds' net assets. Avery willfully aided and abetted and caused these violations when he authorized the securities transactions that caused the Funds to violate the 5% and 10% restrictions.
VIOLATIONS OF SECTION 17(j) OF THE INVESTMENT COMPANY ACT AND RULES 17j-1(b) AND (c) THEREUNDER AND VIOLATIONS OF SECTION 204 OF THE ADVISERS ACT AND RULE 204-2(a)(12) THEREUNDER3
N. Section 17(j) of the Investment Company Act makes it unlawful for any affiliated person of a registered investment company or of its investment adviser to defraud the investment company in connection with the purchase or sale of a security held or to be acquired by the investment company. Rule 17j-1(b) of the Investment Company Act required every registered investment company, and its investment adviser, to, among other things: (1) adopt a written code of ethics to prevent violations of Section 17(j) of the Investment Company Act; and (2) use reasonable diligence and institute procedures reasonably necessary to prevent violations of the code. Rule 17j-1(c) of the Investment Company Act required every access person of a registered investment company, or of an investment adviser of such investment company, to report all securities transactions in which he or she has beneficial ownership, by the tenth day after the end of the calendar quarter in which the transactions occurred. Rule 17j-1(c)(4) required the investment company and investment adviser to inform access persons of these duties.
O. ND Money Management and Ranson Capital willfully violated and Walstad willfully aided and abetted and caused the Funds' and the advisers' violations of Section 17(j) of the Investment Company Act and Rules 17j-1(b) and 17j-1(c)(4) thereunder by failing to use reasonable diligence and institute procedures reasonably necessary to prevent violations of the Code and failing to notify employees of their duties under the Code.
P. Section 204 of the Advisers Act requires registered investment advisers to make and keep certain records which are subject at any time to inspection by the Commission's staff. Rule 204-2(a)(12) further requires investment advisers to maintain a record of every transaction in a security in which the investment adviser or advisory representative has a direct or indirect beneficial ownership, and must be recorded not later than 10 days after the end of the calendar quarter in which the transaction was effected.
Q. ND Money Management and Ranson Capital willfully violated and Walstad willfully aided and abetted and caused their violations of Section 204 of the Advisers Act and Rule 204-2(a)(12) thereunder by failing to obtain and maintain quarterly transaction reports from required employees.
IV.
In view of the foregoing, the Commission deems it appropriate and in the public interest to accept the Offers submitted by Respondents and to impose the sanctions specified therein.
Accordingly, IT IS ORDERED:
A. Pursuant to Section 203(e) of the Advisers Act, that ND Money Management be censured;
B. Pursuant to Section 203(e) of the Advisers Act and Section 15(b) of the Exchange Act, that Ranson Capital be censured;
C. Pursuant to Section 203(k) of the Advisers Act and Section 9(f) of the Investment Company Act, that ND Money Management and Ranson Capital cease and desist from committing or causing any violation and any future violation of Sections 204 and 206(2) of the Advisers Act and Rule 204-2(a)(12) thereunder and Sections 17(j) and 34(b) of the Investment Company Act and Rules 17j-1(c) and (d) thereunder, and from causing any violation and any future violation of Section 12(d)(1)(A) of the Investment Company Act;
D. Pursuant to Section 203(i) of the Advisers Act and Section 9(d) of the Investment Company Act, that ND Money Management shall, within thirty (30) days of the entry of this Order, pay a civil money penalty in the amount of $10,000 to the United States Treasury. Such payment shall be: (1) made by United States postal money order, certified check, bank cashier's check or bank money order; (2) made payable to the Securities and Exchange Commission; (3) hand-delivered or mailed to the Comptroller, Securities and Exchange Commission, Operations Center, 6432 General Green Way, Stop 0-3, Alexandria, VA 22312; and (4) submitted under cover letter that identifies ND Money Management as a respondent in these proceedings, and the file number of these proceedings, a copy of which cover letter and money order or check shall be sent to Randall J. Fons, Regional Director, Securities and Exchange Commission, Central Regional Office, 1801 California Street, Suite 4800, Denver, Colorado 80202;
E. Pursuant to Section 203(i) of the Advisers Act, Section 9(d) of the Investment Company Act and Section 21B of the Exchange Act, that Ranson Capital shall, within thirty (30) days of the entry of this Order, pay a civil money penalty in the amount of $10,000 to the United States Treasury. Such payment shall be: (1) made by United States postal money order, certified check, bank cashier's check or bank money order; (2) made payable to the Securities and Exchange Commission; (3) hand-delivered or mailed to the Comptroller, Securities and Exchange Commission, Operations Center, 6432 General Green Way, Stop 0-3, Alexandria, VA 22312; and (4) submitted under cover letter that identifies Ranson Capital as a respondent in these proceedings, and the file number of these proceedings, a copy of which cover letter and money order or check shall be sent to Randall J. Fons, Regional Director, Securities and Exchange Commission, Central Regional Office, 1801 California Street, Suite 4800, Denver, Colorado 80202;
F. ND Money Management and Ranson Capital shall comply with the following remedial undertakings:
(1) Within 30 days of the date of the Order, ND Money Management and Ranson Capital shall retain, at their own expense, an independent consultant, not unacceptable to the Commission's staff, to conduct a comprehensive review of ND Money Management's, Ranson Capital's and the Funds' policies, practices, and procedures related to the matters described in paragraphs III.E. through G. above to determine the adequacy of such policies, practices, and procedures to reasonably detect and prevent violations of the federal securities laws;
(2) Within 90 days of the entry of the Order, the consultant shall prepare a written recommendation of policies, practices, and procedures, or amendments thereto, designed reasonably to prevent and detect, insofar as practicable and deemed necessary, future violations of the federal securities laws relating to such matters, with a copy of such recommendation to be given simultaneously to the Commission's Central Regional Office (the "CRO"), ND Money Management, Ranson Capital, the Funds and their Boards;
(3) ND Money Management and Ranson Capital shall adopt, implement, and maintain all policies, practices and procedures recommended by the consultant within 30 days of the receipt of the recommendation; provided, however, that as to any recommendation of the consultant which ND Money Management or Ranson Capital determines is, in whole or in part, unduly burdensome, ND Money Management and Ranson Capital may suggest an alternative procedure designed to achieve the same objective or purpose as that of the recommendation of the consultant. ND Money Management and Ranson Capital shall set forth in an affidavit to be submitted to the consultant and the CRO such alternative procedure, and a description of how such alternative procedure achieves the same objective or purpose as the consultant's original recommendation. The consultant shall evaluate the alternative procedure proposed by ND Money Management and Ranson Capital. However, ND Money Management and Ranson Capital will abide by the consultant's final determination with regard thereto and adopt those recommendations which the consultant ultimately determines are appropriate;
(4) The consultant shall provide training to relevant ND Money Management, Ranson Capital and Fund employees designed reasonably to effect the understanding of, and compliance with, the implemented policies and procedures;
(5) Within 120 days of the issuance of the Order, ND Money Management and Ranson Capital shall file an affidavit with the CRO setting forth the details of ND Money Management's and Ranson Capital's compliance with these undertakings and implementation of the consultant's recommendations pursuant to paragraphs (1) through (4) above;
(6) At intervals of six months, beginning one year after the entry of the Order and ending four years after the entry of the Order, the independent consultant shall conduct a review of ND Money Management's, Ranson Capital's and the Funds' policies, practices and procedures to assure continued compliance with the Order and the undertakings agreed to herein. As a result of such review, the consultant may recommend additional policies, practices and procedures or revisions to existing policies, practices and procedures to achieve continued compliance with the objectives outlined in paragraphs (1) through (4) above. A report of the consultant's findings of the semi-annual reviews shall then be forwarded to the CRO. With respect to any additional recommendations, ND Money Management and Ranson Capital may suggest an alternative procedure designed to achieve the same objective or purpose as that of the recommendation of the consultant. ND Money Management and Ranson Capital shall set forth in an affidavit to be submitted to the consultant and the CRO such alternative procedure, and a description of how such alternative procedure achieves the same objective or purpose as the consultant's original recommendation. The consultant shall evaluate the alternative procedure proposed by ND Money Management and Ranson Capital. However, ND Money Management and Ranson Capital will abide by the consultant's final determination with regard thereto and adopt those recommendations which the consultant ultimately determines are appropriate;
(7) ND Money Management and Ranson Capital may apply to the Commission's staff for an extension of the deadlines described above before their expiration, and upon a showing of good cause by ND Money Management and Ranson Capital, the Commission's staff may, in its sole discretion, grant such extensions for whatever time period it deems appropriate;
(8) To ensure the independence of the independent consultant, ND Money Management and Ranson Capital:
(a) shall not have the authority to terminate the independent consultant without the prior written approval of the Commission's staff; and
(b) shall compensate the independent consultant and persons engaged to assist the independent consultant for services rendered pursuant to the Order at their reasonable and customary rates;
(9) For the period of the engagement and for a period of two years from the completion of the engagement, the independent consultant shall not enter into any employment, consultant, attorney-client, auditing or other professional relationship with ND Money Management, Ranson Capital, the Funds, Walstad, or any of their present or former affiliates, directors, officers, employees or agents acting in their capacity as such. Any firm with which the independent consultant is affiliated or of which he is a member, and any person engaged to assist the independent consultant in performance of his duties under this Order shall not, without prior written consent of the Commission staff, enter into any employment, consultant, attorney-client, auditing or other professional relationship with ND Money Management, Ranson Capital, the Funds, Walstad, or any of their present or former affiliates, directors, officers, employees or agents acting in their capacity as such for the period of the engagement and for a period of two years after the engagement; and
(10) Within 60 days of the date of the Order, ND Money Management and Ranson Capital shall disseminate, at their own expense, a copy of the Order to all current shareholders of the Funds. The copy of the Order may be included with other mailings of the Funds. In addition, for one year from the date of the Order, ND Money Management and Ranson Capital shall disseminate, at their own expense, a copy of the Order to all prospective or new shareholders who receive a prospectus from the Funds; and
IT IS FURTHER ORDERED:
G. Pursuant to Section 203(f) of the Advisers Act and Section 15(b) of the Exchange Act, that Walstad and Avery be, and hereby are, censured;
H. Pursuant to Section 203(k) of the Advisers Act and Section 9(f) of the Investment Company Act, that Walstad cease and desist from committing or causing any violation and any future violation of Sections 204 and 206(2) of the Advisers Act and Rule 204-2(a)(12) thereunder and Sections 17(j) and 34(b) of the Investment Company Act and Rules 17j-1(c) and (d) thereunder, and from causing any violation and any future violation of Section 12(d)(1)(A) of the Investment Company Act;
I. Pursuant to Section 203(k) of the Advisers Act and Section 9(f) of the Investment Company Act, that Avery cease and desist from committing or causing any violation and any future violation of Section 206(2) of the Advisers Act and Section 34(b) of the Investment Company Act, and from causing any violation and any future violation of Section 12(d)(1)(A) of the Investment Company Act;
J. Pursuant to Section 203(i) of the Advisers Act, Section 9(d) of the Investment Company Act and Section 21B of the Exchange Act, that Walstad shall, within thirty (30) days of the entry of this Order, pay a civil money penalty in the amount of $15,000 to the United States Treasury. Such payment shall be: (1) made by United States postal money order, certified check, bank cashier's check or bank money order; (2) made payable to the Securities and Exchange Commission; (3) hand-delivered or mailed to the Comptroller, Securities and Exchange Commission, Operations Center, 6432 General Green Way, Stop 0-3, Alexandria, VA 22312; and (4) submitted under cover letter that identifies Walstad as a respondent in these proceedings, and the file number of these proceedings, a copy of which cover letter and money order or check shall be sent to Randall J. Fons, Regional Director, Securities and Exchange Commission, Central Regional Office, 1801 California Street, Suite 4800, Denver, Colorado 80202; and
K. Pursuant to Section 203(i) of the Advisers Act, Section 9(d) of the Investment Company Act and Section 21B of the Exchange Act, that Avery shall, within thirty (30) days of the entry of this Order, pay a civil money penalty in the amount of $5,000 to the United States Treasury. Such payment shall be: (1) made by United States postal money order, certified check, bank cashier's check or bank money order; (2) made payable to the Securities and Exchange Commission; (3) hand-delivered or mailed to the Comptroller, Securities and Exchange Commission, Operations Center, 6432 General Green Way, Stop 0-3, Alexandria, VA 22312; and (4) submitted under cover letter that identifies Avery as a respondent in these proceedings, and the file number of these proceedings, a copy of which cover letter and money order or check shall be sent to Randall J. Fons, Regional Director, Securities and Exchange Commission, Central Regional Office, 1801 California Street, Suite 4800, Denver, Colorado 80202.
By the Commission.
Jonathan G. Katz
Secretary
Footnote
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1 The findings herein are made pursuant to Respondents' Offers of Settlement and are not binding on any other person or entity in this or any other proceeding. 2 "Willfully" as used in this Order means intentionally committing the act which constitutes the violation. See Wonsover v. SEC, 205 F.3d 408, 414 (D.C. Cir. 2000); Tager v. SEC, 344 F.2d 5, 8 (2d Cir. 1965). There is no requirement that the actor also be aware that he is violating one of the Rules or Acts. 3 References in paragraphs N. through Q. herein to Rules 17j-1 and 204-2(a)(12) are to the versions of the Rules that predate their amendment on October 29, 1999. |