UNITED STATES SECURITIES AND EXCHANGE COMMISSION
LITIGATION RELEASE NO 16623 / July 10, 2000
SECURITIES AND EXCHANGE COMMISSION v. RUPAY-BARRINGTON CAPITAL MANAGEMENT, INC., RUPAY-BARRINGTON FINANCIAL GROUP, INC. AND RUPAY-BARRINGTON FUNDS, INC. Civil Action No. 3-00-CV1482-D Northern District of Texas, Dallas Division)
SEC CHARGES THAT MUTUAL FUND MANAGER
The Securities and Exchange Commission ("SEC") announced today that it has filed suit in the United States District Court for the Northern District of Texas against a registered series mutual fund company, its investment adviser and an upstream affiliate, alleging fraud, mismanagement and breach of fiduciary duty. The SEC's Complaint also alleges sales of securities without a valid prospectus, violations of net asset value requirements, improper loans to affiliates and illegal suspension of mutual fund share redemptions. The defendants are
The defendants are headquartered in Arlington, Texas.
The SEC's complaint alleges that, from at least January 1999, Rupay Management caused the Fund, its advisory client, to carry a worthless receivable from Rupay Group, which is deeply insolvent. This receivable arose from Rupay Group's agreement to pay Fund expenses that exceeded a certain percentage of the Fund's net assets. According to the Complaint, this receivable was uncollectable from at least January 1999 through June 2000, yet Rupay Management caused the Fund's books to reflect the receivable at full face value. The Complaint further alleges that the receivable grew steadily over this period to a peak of approximately $250,000, which inflated the net asset value of the Fund's three portfolios - by almost 600% in one instance - meaning that the Fund sold and redeemed shares at improperly high prices. Ultimately, the Complaint alleges, the situation became so desperate that the Fund improperly suspended redemptions for its "Total Return" portfolio, which held the largest portion of the receivable and hence was illiquid.
The Complaint further alleges that shareholders were not told of the worthless receivable. To the contrary, the Complaint alleges, Rupay Management advised its private advisory clients to invest in the Fund, and caused the Fund's last shareholder report to misrepresent that Rupay Group was paying on the receivable, when it was not.
The Complaint also alleges that the Fund sold shares during most of this period using an outdated prospectus and that these events transpired without remedial action by Rupay Management or the Fund's directors.
Simultaneous with the filing of the Complaint, the defendants consented, without admitting or denying the allegations of the Complaint, to the entry of:
(2) an order appointing a Special Master to assume management over the Fund, to liquidate the Fund's assets and to make a distribution to the Fund's service providers, creditors and shareholders. A I M Advisors, Inc., headquartered in Houston, Texas, has agreed to act as the Special Master.
The Complaint also seeks, against Rupay Management and Rupay Group only, permanent injunctive relief, disgorgement of any ill-gotten gains, with prejudgment interest, and civil monetary penalties.
The SEC is continuing its investigation into these matters.