UNITED STATES OF AMERICA
In the Matter of
Invesco Funds Group, Inc., AIM Advisors, Inc., and AIM Distributors, Inc.,
ORDER INSTITUTING ADMINISTRATIVE AND CEASE-AND-DESIST PROCEEDINGS PURSUANT TO SECTION 15(b) OF THE SECURITIES EXCHANGE ACT OF 1934, SECTIONS 203(e) AND 203(k) OF THE INVESTMENT ADVISERS ACT OF 1940, AND SECTIONS 9(b) AND 9(f) OF THE INVESTMENT COMPANY ACT OF 1940, MAKING FINDINGS, AND IMPOSING REMEDIAL SANCTIONS AND A CEASE-AND-DESIST ORDER
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, and hereby are, instituted pursuant to Section 15(b) of the Securities Exchange Act of 1934 ("Exchange Act"), Sections 203(e) and 203(k) of the Investment Advisers Act of 1940 ("Advisers Act"), and Sections 9(b) and 9(f) of the Investment Company Act of 1940 ("Investment Company Act") against Invesco Funds Group, Inc., AIM Advisors, Inc., and AIM Distributors, Inc. ("IFG," "AIM Advisors," and "ADI," respectively, or individually, "Respondent"; collectively, "Respondents").
In anticipation of the institution of these proceedings, the Respondents have submitted an Offer of Settlement (the "Offer") 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 Respondents and the subject matter of these proceedings, the Respondents consent to the entry of this Order Instituting Administrative and Cease-and-Desist Proceedings Pursuant to Section 15(b) of the Securities Exchange Act of 1934, Sections 203(e) and 203(k) of the Investment Advisers Act of 1940, and Sections 9(b) and 9(f) of the Investment Company Act of 1940, Making Findings, and Imposing Remedial Sanctions and a Cease-and-Desist Order ("Order") as set forth below.
On the basis of this Order and Respondents' Offer, the Commission finds1 that:
1. This is a proceeding against IFG, AIM Advisors, and ADI based on market timing agreements that allowed certain individuals and entities to make frequent trades in the Invesco Funds advised by IFG and AIM Mutual Funds advised by AIM Advisors. Market timing includes (a) frequent buying and selling of shares of the same mutual fund or (b) buying or selling mutual fund shares in order to exploit inefficiencies in mutual fund pricing. Market timing, while not illegal per se, can harm other mutual fund shareholders because it can dilute the value of their shares, if the market timer is exploiting pricing inefficiencies, or disrupt the management of the mutual fund's investment portfolio and can cause the targeted mutual fund to incur costs borne by other shareholders to accommodate frequent buying and selling of shares by the market timer.
2. AMVESCAP PLC is a United Kingdom holding company whose American Depository Receipts trade on the New York Stock Exchange. IFG, AIM Advisors and ADI are now, and at all times relevant to this Order were, wholly-owned subsidiaries of AMVESCAP.
3. IFG, a Delaware corporation headquartered in Denver, and its predecessors have been registered with the Commission as investment advisers since 1957. During the time period relevant to this Order, IFG served as an investment adviser to eight registered open-ended investment companies, consisting of over forty-five series or mutual funds ("Invesco Funds"). AIM Advisors began assuming responsibility for serving as investment adviser to the Invesco Funds in 2003. IFG intends to voluntarily withdraw its registration with the Commission as an investment adviser as soon as it is practicable. On December 2, 2003, the Commission filed an action against IFG and its former chief executive officer ("CEO") in federal district court in connection with the matters described herein. SEC v. IFG et al., Civil Action No. 03-N-2421 (PAC).
4. AIM Advisors, a Delaware corporation headquartered in Houston, has been registered with the Commission as an investment adviser since November 1976. In 2003 and 2004, but after the conduct that is the subject of this order, the Invesco and AIM fund complexes became fully integrated and are now overseen by a single board of directors. AIM Advisors currently serves as an investment adviser to 14 registered open-ended investment companies, consisting of approximately eighty-seven series or mutual funds ("AIM Funds"). Five of these registered investment companies were a part of the Invesco complex, and the individual series within these registered investment companies continue to carry the Invesco name.
5. ADI, a Delaware corporation headquartered in Houston, has been registered with the Commission as a broker-dealer since February 1977. ADI is the primary distributor and principal underwriter for AIM Funds.
6. IFG entered into negotiated, but undisclosed, market timing agreements with over 40 individuals and entities (the "market timers" or "timers") which allowed them to "market time" certain Invesco Funds, while representing to other shareholders that it did not permit frequent trading in those funds.
7. Under the agreements, which existed from at least 2001 through July 2003, IFG permitted the market timers to make excessive exchanges and redemptions totaling approximately $58 billion in select Invesco Funds. Some of the timing agreements were entered into with the understanding that the market timer would make long-term investments, so-called "sticky assets," in certain non-timed Invesco Funds. IFG also tolerated market-timing activities by other shareholders with whom it did not have timing agreements from at least 2000 through July 2003 (the "relevant time period.").
8. The market timing agreements financially benefited IFG in that IFG realized additional advisory fees from the timed funds and sticky assets under its management. Because IFG had reason to believe that the assets brought to the Invesco Funds under the market timing agreements, while serving to increase IFG's advisory fees, could be traded in a manner detrimental to the Invesco Funds, IFG had a conflict of interest with the Invesco Funds. IFG failed to disclose the conflict of interest to the board of directors and shareholders of the affected Invesco Funds, thereby breaching IFG's fiduciary duty to the Invesco Funds.
9. The market timing agreements were also inconsistent with the disclosures made in the Invesco Funds' prospectuses. The prospectuses stated that shareholders could make up to four exchanges out of each fund per twelve-month period. The market timing agreements provided for more than the disclosed number of exchanges. Furthermore, while the prospectuses also disclosed that each fund reserved the right to modify the exchange policy if such a modification was determined to be in the best interests of the fund, IFG failed to make a determination that each proposed market timing agreement was in the best interest of the fund before entering into the agreement. In the aggregate, the market timing trades made under the agreements were detrimental to the Invesco Funds' shareholders for the reasons set forth in paragraph 1 above.
10. During the relevant time period, IFG experienced a dramatic and prolonged decline in its assets under management. IFG entered into the market timing agreements to lessen this decline.
11. At their height, the market timers held over $1 billion of the assets invested in the Invesco Funds, and during the relevant time period, made excessive exchanges and redemptions totaling approximately $58 billion. Frequent trading by investors who timed the Invesco Funds caused dilution to the affected funds.
12. IFG, through its CEO, established an internal organizational structure by which it entered into agreements with market timers. In most cases, the head of what was known as IFG's "market timing desk" would receive proposals from investors seeking to market time the Invesco Funds. After obtaining information from an investor about its proposed frequent trading model, the head of the market timing desk would then orally present that proposal to IFG's chief investment officer ("CIO"). The CIO then approved or rejected the proposed agreement. By design, none of the market timing agreements was reduced to writing.
13. Furthermore, IFG's commission structure for its salespeople provided for a separate and distinct payout for investments made in the Invesco Funds pursuant to the market timing agreements. Although this commission payout was lower than the payout for ordinary long-term investments, the fact that commission payouts on market timing investments were separately designated shows that IFG institutionalized the practice of entering into market timing agreements. Furthermore, this commission structure created an incentive for salespeople to bring market timing proposals to IFG, and the commission structure had that effect. Members of IFG's senior management knew about and approved this structure.
14. On several occasions, issues arose within IFG relating to the harmful and disruptive trading activities of the market timers. Primarily in response to complaints made by Invesco Fund managers, IFG's CEO, CIO, national sales manager, and the head of the market timing desk met to respond to the complaints while continuing the operation of IFG's market timing program.
15. With all market timers, IFG required that they keep their timed monies within the Invesco Fund complex when exchanging out of a fund approved for timing. With some market timers, IFG also required that they maintain sticky assets within the Invesco Fund complex in exchange for their ability to engage in frequent trading. IFG received additional fees from these assets under management.
16. IFG knew that the assets brought to the Invesco Funds under the market timing agreements, while serving to increase IFG's advisory fees, could be traded in a manner detrimental to the Invesco Funds, thereby placing IFG in a conflict of interest situation with the Invesco Funds. IFG breached its fiduciary duty to the Invesco Funds subject to the timing agreements by failing to disclose this conflict of interest to the board of directors of the Invesco Funds or to the Invesco Fund shareholders and obtain the board members' consent to the agreements.
17. According to an internal memorandum, between August 2001 and February 2003, IFG's single largest timer, Canary Capital Partners LLC ("Canary"), was permitted to make up to 52 exchanges per year within ten Invesco Funds, with a total trading capacity of $304 million in those funds.
18. In February 2003, IFG's CIO informed other members of IFG's senior management that Canary's market timing activities were negatively affecting his ability to manage a particular Invesco Fund and costing that fund's "legitimate" shareholders. Due to these activities, the CIO and another IFG fund manager recommended that IFG terminate Canary's market timing privileges. However, rather than terminating its relationship with Canary, IFG simply reduced Canary's timing capacity and confined Canary's trading activities to five particular Invesco Funds. Thereafter, Canary continued to make frequent trades in these funds until July 2003.
19. During 2002, IFG also introduced Canary to Invesco's European offshore fund complex. IFG did so with the knowledge and understanding that Canary intended to market time the offshore complex's funds, and that IFG would receive additional fees as a result of this agreement. Ultimately, IFG assisted the offshore complex in negotiating a final agreement with Canary, and IFG subsequently received various fees for Canary's trading activities in the offshore funds.
20. During the same period that IFG entered into agreements with market timers, the prospectuses for the Invesco Funds represented that IFG discouraged frequent trading by investors by attempting to limit the number of exchanges a shareholder could make in each Invesco Fund. To that end, these prospectuses disclosed that shareholders could "make up to four exchanges out of each fund per twelve-month period." The prospectuses further disclosed that "[e]ach Fund reserves the right to reject any exchange request, or to modify or terminate the exchange policy, if it is in the best interests of the Fund."
21. IFG prepared these prospectuses, provided them to shareholders and prospective shareholders in the Invesco Funds, and filed registration statements containing these prospectuses with the Commission.
22. IFG knew that its agreements with market timers were inconsistent with the Invesco Funds' prospectus disclosure. Specifically, IFG knew that the market timers were being allowed to make more than four exchanges out of certain Invesco Funds in a twelve-month period. IFG also knew that a determination that each proposed market timing agreement was in the best interest of the fund was not being made before it entered into the agreement. In fact, IFG knew that the timing activities were harming the Invesco Funds and their shareholders.
23. IFG also knew that its agreements with market timers were inconsistent with earlier representations IFG had made to the Invesco Funds' board of directors about how IFG would discourage market timing activities within the Invesco Funds. Specifically, in 1997, IFG represented to the board that IFG would strictly enforce the prospectus language by allowing a maximum of four exchanges or redemptions by an investor in an Invesco Fund over a twelve-month period. Despite this representation, IFG subsequently entered into agreements with market timers without informing the board of IFG's unilateral change to the Invesco Funds' market timing policy.
24. Furthermore, in or about January 2003, the attorney who served as IFG's chief compliance officer prepared a memorandum concerning IFG's market timing activities. In the memorandum, the chief compliance officer discussed how IFG's tolerance of market timers might not be in the best interests of the Invesco Funds and their shareholders, and explained a number of the potentially detrimental effects of market timing, including the portfolio managers' increased need for cash positions, lower returns in the timed funds, capital gain taxes unfairly paid by long-term shareholders, and negative impacts to the portfolio managers' abilities to carry out their investment strategies. Ultimately, the chief compliance officer recommended that IFG either enforce the existing prospectus language, modify the prospectus language to disclose IFG's actual practices, or adopt a new policy to limit market timing. The chief compliance officer gave the memorandum to IFG's CEO in January 2003. IFG's CEO did not circulate the chief compliance officer's memorandum to the board of directors of the Invesco Funds, nor did he follow any of the chief compliance officer's recommendations.
25. In addition to entering into the market timing agreements described above in paragraphs 10 through 19, IFG typically did not take action to restrict the trading of Invesco Fund shareholders whom IFG knew were trading in excess of the four-exchange limit set forth in the Invesco Funds' prospectuses. The frequent trading by these shareholders also resulted in substantial dilution in the affected Invesco Funds.
26. Between January 2001 and September 2003 (the "relevant period"), AIM Funds' Commission-filed prospectuses contained a disclosure (the "disclosure") that shareholders were limited to 10 exchanges per calendar year. High level personnel of AIM Advisors participated in the drafting or review of the disclosure prior to the filing of the prospectuses with the Commission.
27. AIM Advisors entered into 10 negotiated, but undisclosed, market timing agreements with individuals and entities (the "market timers" or "timers"), allowing the timers to exceed the per-year 10-exchange limit, and to make trades, valued collectively at tens of millions of dollars, within AIM Funds. One of the timing agreements was entered into with the understanding that the market timer would make a long-term investment, or invest so-called "sticky assets," in certain AIM Funds.
28. The market timing agreements financially benefited AIM Advisors in that AIM Advisors realized additional advisory fees from the timed assets. The fact that AIM Advisors had reason to believe that the assets brought to AIM Funds under the market timing agreements, while effectively increasing AIM Advisors' advisory fees, could be traded in a manner detrimental to AIM Funds, gave rise to a conflict of interest between AIM Advisors and AIM Funds. AIM Advisors failed to disclose the conflict of interest to the board of trustees or shareholders of AIM Funds, thereby breaching AIM Advisors' fiduciary duty to AIM Funds and the AIM Funds shareholders.
29. The market timing agreements were also inconsistent with the AIM Funds' prospectus disclosure, which stated that shareholders are limited to 10 exchanges within each AIM Funds portfolio per twelve-month period. The market timing agreements provided for more than 10 exchanges.
30. Specifically, the disclosure in the AIM Funds prospectuses stated:
You are limited to a maximum of 10 exchanges per calendar year, because excessive short-term trading or market timing activity can hurt fund performance. If you exceed that limit, or if an AIM Fund or the distributor determines, in its sole discretion, that your short-term trading is excessive or that you are engaging in market timing activity, it may reject any additional exchange orders. An exchange is the movement out of (redemption) one AIM Fund and into (purchase) another AIM Fund.
The disclosure expressly linked the rationale for the per-year 10-exchange limit to the potential harm to the performance of AIM Funds posed by excessive short-term trading and market timing generally. Consequently, it is implied in the disclosure that AIM Advisors would not allow trading it had identified as market timing, unless AIM Advisors had concluded, after sufficient analysis, that the proposed market timing would not harm the performance of AIM Funds. In fact, AIM Advisors failed to conduct analysis sufficient to determine whether the proposed market timing agreements would harm, or whether the actual agreements were harming, the performance of AIM Funds. In the aggregate, the market timing trades conducted pursuant to the timing agreements were harmful to the performance of AIM Funds for the reasons set forth in paragraph 1 above.
31. AIM Advisors' chief equity officer during the relevant period ("AIM Advisors Officer") and the highest ranking ADI officer during the relevant period ("ADI Officer") jointly or individually approved the market timing agreements. The ADI Officer negotiated and approved the sticky asset agreement. ADI received a financial benefit from the market timing agreements.
32. During the relevant period, the AIM Funds trustees were led to believe, by AIM Advisors and ADI, that AIM Advisors was diligently, and for the most part successfully, enforcing the per-year 10-exchange limit, and preventing market timing within AIM Funds.
33. AIM Advisors delegated to an affiliated entity serving as transfer agent ("transfer agent") to AIM Funds the duty of monitoring and enforcing compliance with the AIM Funds per-year 10-exchange limit. The transfer agent also processed proposals for market timing agreements, by conveying the terms of screened proposals to the Aim Advisors Officer and ADI Officer for determination by them, individually or jointly, as to whether AIM Advisors would accept or reject the proposal. The approved timing agreements typically included an agreed maximum number of exchanges or "round trips" allowed within a given time frame, a maximum dollar amount permitted for each exchange, and a stipulation as to which AIM Funds portfolios could be timed.
34. Once the market timing agreements were reached, employees of AIM Advisors' transfer agent entered the timing agreements' terms into a central database. In this manner, the employees, who were generally responsible for monitoring compliance with the 10-exchange prospectus limit, were apprised to take no action against an approved market timer for exceeding 10 exchanges. On several occasions, the transfer agent employees failed to detect that timers had violated the terms of their timing agreements, either by exceeding the exchange-number limit, the timed amount limit, or the stipulation as to which portfolios could be timed.
35. One of the 10 timing agreements included a provision that the prospective timer would maintain approximately $26 million in sticky assets. This sticky assets agreement was approved by the ADI Officer.
36. In addition to the advisory fees it received from assets invested in AIM Funds for timing purposes, AIM Advisors also received advisory fees in connection with the sticky assets agreement.
37. AIM Advisors knew that the assets deposited with AIM Funds pursuant to the market timing agreements, while effectively increasing AIM Advisors' advisory fees, could be traded in a manner detrimental to AIM Funds, giving rise thereby to a conflict of interest between AIM Advisors and AIM Funds. AIM Advisors breached its fiduciary duty to AIM Funds and its shareholders by failing to disclose this conflict of interest to the board of trustees of AIM Funds or to the AIM Funds shareholders, and by failing to obtain the board members' consent to the timing agreements.
38. Notwithstanding the conduct described above, AIM Advisors, through the efforts of the transfer agent and others, generally tried to detect, deter, and prevent market timing in AIM Funds. AIM Advisors rejected far more proposals from market timers than it accepted, and most of the rejected proposals involved more money and more exchanges than the money and exchanges provided for in the market timing agreements. AIM Advisors also implemented, through the transfer agent and others, policies and practices designed to combat market timing, including the daily monitoring of trading activity, the placing of stop codes on accounts that reached or exceeded 10 exchanges within a year, the blocking of trades by traders with a pattern of market timing activity, and the withholding or rolling back of commission payments to wholesalers on certain timing assets.
39. AIM Advisors permitted a market timer to trade up to $30 million per exchange, in up to 20 exchanges per year, between the AIM Funds Cash Reserve Fund and its International Equity Fund, one of the most heavily timed international portfolios at AIM Funds. The market timer actually exceeded the parameters of his timing agreement: between January 2, 2002, and June 25, 2002, the timer moved assets in and out of the International Equity Fund 12 times, or a total of 24 exchanges - four more than the agreed 20 exchanges.
40. AIM Advisors permitted a market timer to trade up to an aggregate $13 million, in up to 24 exchanges per year, in certain AIM Funds portfolios. AIM Advisors' agreement with the timer contained a provision that the timer would maintain $26 million in other AIM Funds portfolios (the sticky assets arrangement). The agreement also allowed the timer to transfer up to $30 million, in up to 12 exchanges per year, in another group of accounts. The ADI Officer negotiated and unilaterally approved this sticky assets agreement and both AIM Advisors and ADI received a financial benefit from the agreement.
41. Throughout the relevant period, AIM Funds' public prospectuses contained the above-quoted disclosure expressly linking market timing to potential harm to the performance of AIM Funds, implying thereby that AIM Advisors would not allow a trader to exceed the per-year 10-exchange limit, unless it had determined, after sufficient analysis, that the activity in question would not harm the performance of AIM Funds.
42. Between January 2001 and September 2003, AIM Advisors provided to AIM Funds shareholders and prospective shareholders the prospectuses containing the market timing disclosure and filed with the Commission registration statements containing the prospectuses.
43. AIM Advisors delegated to the transfer agent employees the task of monitoring compliance with the per-year 10-exchange limit, and halting exchanges by traders in violation of the prospectus limit. At the same time it was policing the 10-exchange limit with respect to the general population of AIM Funds shareholders, AIM Advisors allowed the market timers, pursuant to the timing agreements, to exceed the 10-exchange limit.
44. Beginning in 2001, AIM Advisors portfolio managers informed AIM Advisors that they believed market timing within AIM Funds was having a deleterious impact on the performance of certain AIM Funds portfolios. On at least three occasions, the portfolio manager of the most frequently timed international AIM Funds portfolio sent e-mails apprising AIM Advisors of his belief and concern that market timing was harming the performance of the portfolios he managed. Despite these warnings and their knowledge of the harm, the AIM Advisors Officer and the ADI Officer continued to authorize market timing agreements.
45. From 1998 through 2003, the board of trustees of AIM Funds was informed at various times of the negative impact of market timing and of efforts to reduce market timing in AIM Funds. In June of 2002, the ADI Officer informed the board that the assets of a known market timer had been expelled from AIM Funds, but the ADI Officer failed to disclose to the board that AIM Advisors had entered into a market timing agreement with the timer, and with other timers, allowing them to conduct per-year exchanges in excess of the prospectus limit.
46. As a result of the conduct described above, IFG and AIM Advisors willfully violated Sections 206(1) and 206(2) of the Advisers Act in that, while each acted as an investment adviser, it employed devices, schemes, or artifices to defraud clients or prospective clients, and engaged in transactions, practices, or courses of business which operated or would operate as a fraud or deceit upon clients or prospective clients. Specifically, IFG and AIM Advisors entered into market timing agreements, which created a conflict of interest that IFG and AIM Advisors knowingly or recklessly failed to disclose to the board of directors or shareholders of their respective funds, and which were inconsistent with the funds' prospectus disclosures.
47. As a result of the conduct described above, ADI willfully aided and abetted, and caused, AIM Advisors' violations of Sections 206(1) and 206(2) of the Advisers Act, in that ADI negotiated and approved market timing agreements, provided materially misleading information about AIM Advisors' market timing monitoring and prevention efforts to the board of trustees of AIM Funds, and financially benefited from the timing agreements.
48. As a result of the conduct described above, IFG, AIM Advisors and ADI, each an affiliated person of its respective timed funds, willfully violated Section 17(d) of the Investment Company Act and Rule 17d-1 thereunder, in that, while acting as a principal, each participated in and effected transactions in connection with joint arrangements in which their respective funds were participants without filing an application with the Commission and obtaining a Commission order approving the transactions.
49. As a result of the conduct described above, IFG and AIM Advisors willfully violated Section 34(b) of the Investment Company Act in that each made an untrue statement of material fact in a registration statement, application, report, account, record, or other document filed or transmitted pursuant to the Investment Company Act, or omitted to state therein any fact necessary in order to prevent the statements made therein, in the light of the circumstances under which they were made, from being materially misleading.
50. In determining to accept the Offer, the Commission has considered the following efforts voluntarily undertaken by AIM Advisors:
51. Ongoing Cooperation. In determining to accept the Offer, the Commission has considered the following efforts voluntarily undertaken by IFG, AIM Advisors and ADI. IFG, AIM Advisors and ADI shall cooperate fully with the Commission in any and all investigations, litigations or other proceedings relating to or arising from the matters described in the Order. In connection with such cooperation, IFG, ADI and AIM Advisors have undertaken:
52. Compliance and Ethics Oversight Structure. AIM Advisors shall maintain a compliance and ethics oversight infrastructure having the following characteristics:
53. Independent Compliance Consultant. AIM Advisors shall retain, within 60 days of the date of entry of the Order, the services of an Independent Compliance Consultant not unacceptable to the staff of the Commission and a majority of the independent board members of AIM Funds. The Independent Compliance Consultant's compensation and expenses shall be borne exclusively by AIM Advisors or its affiliates. AIM Advisors shall require the Independent Compliance Consultant to conduct a comprehensive review of their supervisory, compliance, and other policies and procedures designed to prevent and detect breaches of fiduciary duty, breaches of the Code of Ethics and federal securities law violations by AIM Advisors and its employees. This review shall include, but shall not be limited to, a review of their market timing controls across all areas of business, a review of AIM Funds' pricing practices that may make those funds vulnerable to market timing, a review of AIM Funds' utilization of short term trading fees and other controls for deterring excessive short term trading, and a review of AIM Advisors' policies and procedures concerning conflicts of interest, including conflicts arising from advisory services to multiple clients. IFG and AIM Advisors shall cooperate fully with the Independent Compliance Consultant and shall provide the Independent Compliance Consultant with access to their files, books, records, and personnel as reasonably requested for the review.
54. Periodic Compliance Review. Commencing in 2007, and at least once every other year thereafter, AIM Advisors shall undergo a compliance review by a third party, who is not an interested person, as defined in the Investment Company Act, of AIM Advisors. At the conclusion of the review, the third party shall issue a report of its findings and recommendations concerning AIM Advisors' supervisory, compliance, and other policies and procedures designed to prevent and detect breaches of fiduciary duty, breaches of the Code of Ethics and federal securities law violations by AIM Advisors and their employees in connection with their duties and activities on behalf of and related to AIM Funds. Each such report shall be promptly delivered to AIM Advisors' Internal Compliance Controls Committee and to the independent members of the AIM Funds board of directors.
55. Independent Distribution Consultant. AIM Advisors shall retain, within 90 days of the date of entry of the Order, the services of an Independent Distribution Consultant not unacceptable to the staff of the Commission and the independent board members of AIM Funds. The Independent Distribution Consultant's compensation and expenses shall be borne exclusively by AIM Advisors. IFG and AIM Advisors shall cooperate fully with the Independent Distribution Consultant and shall provide the Independent Distribution Consultant with access to IFG's and AIM Advisors' files, books, records, and personnel as reasonably requested for the review. AIM Advisors shall require that the Independent Distribution Consultant develop a Distribution Plan for the distribution of the monies ordered to be paid in paragraphs IV.E.1. and 2. of the Order and a separate distribution plan for the monies ordered to be paid in paragraph IV.E.3. of the Order, and any interest or earnings thereon, according to a methodology developed in consultation with AIM Advisors and acceptable to the staff of the Commission and the independent board members of AIM Funds. The Distribution Plans shall provide for investors to receive, from the monies available for distribution in order of priority, (i) their proportionate share of losses suffered by the fund due to market timing, and (ii) a proportionate share of advisory fees paid by funds that suffered such losses during the period of such market timing.
56. Excess recovery. AIM Advisors shall also undertake to disgorge and pay to the Commission all amounts in excess of $235 million that it, IFG, ADI or their affiliates obtain, through settlement, final judgment or otherwise, from individuals or entities based on allegations of substantially the same facts as alleged in the Order instituted by the Commission in this proceeding. Such amounts shall be distributed pursuant to the distribution plans referenced in paragraph 55 above.
57. Certification. No later than twenty-four months after the date of entry of the Order, the chief executive officer(s) of IFG and AIM Advisors shall certify to the Commission in writing that IFG and AIM Advisors have fully adopted and complied in all material respects with the undertakings set forth in paragraphs 52 through 58 and with the recommendations of the Independent Compliance Consultant or, in the event of material non-adoption or non-compliance, shall describe such material non-adoption and non-compliance (it being understood that the chief executive officer of AIM Advisors may issue such certification for both IFG and AIM Advisors in the event that IFG ceases to exist as a corporate entity).
58. Recordkeeping. IFG and AIM Advisors shall preserve for a period not less than six years from the end of the fiscal year last used, the first two years in an easily accessible place, any record of IFG's and AIM Advisors' compliance with the undertakings set forth in paragraphs 52 through 58.
59. Deadlines. For good cause shown, the Commission's staff may extend any of the procedural dates set forth above.
In view of the foregoing, the Commission deems it appropriate and in the public interest to impose the sanctions agreed to in the Offer of Settlement of IFG, AIM Advisors and ADI. Accordingly, pursuant to Section 15(b) of the Exchange Act, Sections 203(e) and 203(k) of the Advisers Act and Sections 9(b) and 9(f) of the Investment Company Act, it is hereby ORDERED that:
A. IFG, AIM Advisors and ADI are hereby censured.
B. IFG and AIM Advisors shall cease and desist from committing or causing any violations and any future violations of Sections 206(1) and 206(2) of the Advisers Act and Sections 17(d) and 34(b) of the Investment Company Act and Rule 17d-1 thereunder.
C. ADI shall cease and desist from committing or causing any violations and any future violations of Sections 206(1) and 206(2) of the Advisers Act and Section 17(d) of the Investment Company Act and Rule 17d-1 thereunder.
D. IFG, ADI and AIM Advisors shall comply with the undertakings set forth in paragraphs 52 through 58 above.
E. Disgorgement and Civil Money Penalties
F. Other Obligations and Requirements. Nothing in this Order shall relieve IFG, AIM Advisors, ADI or AIM Funds of any other applicable legal obligation or requirement, including any rule adopted by the Commission subsequent to this Order.
By the Commission.
Jonathan G. Katz
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