U.S. SECURITIES AND EXCHANGE COMMISSION
Litigation Release No. 19069 / February 9, 2005
SEC v. James Tambone and Robert Hussey, Civil Action No. 05-10247-NMG (District of Massachusetts)
SEC CHARGES TWO FORMER COLUMBIA EXECUTIVES WITH FRAUD FOR CONDUCT RELATING TO MUTUAL FUND MARKET TIMING ARRANGEMENTS
The Securities and Exchange Commission filed a civil fraud action today in federal court in Boston against two former executives of Columbia Funds Distributor Inc. in connection with undisclosed market timing arrangements in the Columbia complex of mutual funds. In its complaint, the Commission alleges that James Tambone, the former president of Columbia Funds Distributor, and Robert Hussey, a former senior sales executive, entered into or approved undisclosed timing arrangements with multiple investors that benefited the executives but were detrimental to long-term fund shareholders.
According to the Commission's complaint, from at least 1998 through 2003, Tambone and Hussey secretly entered or approved arrangements with at least eight investors allowing them to engage in frequent short-term trading in at least six Columbia funds. The Commission's complaint alleges that, in connection with certain of the arrangements, Tambone and Hussey accepted so-called "sticky assets" – long-term investments that were to remain in place in return for allowing the investors to actively trade in the funds. According to the complaint, after entering into these arrangements, the eight investors engaged in frequent short-term or excessive trading in at least sixteen different Columbia mutual funds.
The Commission's complaint alleges that Tambone and Hussey acted improperly in entering and accepting the short-term trading arrangements, because the arrangements were never disclosed to long-term fund shareholders or the independent trustees of the funds and in most instances were directly contrary to the disclosures made in the prospectuses used to sell the mutual funds. Six of the eight arrangements were entered into or continued after Columbia adopted prospectus disclosure for the mutual funds expressly stating that the funds did not permit short-term or excessive trading.
The Commission's complaint further alleges that Tambone and Hussey aided and abetted violations by the funds' adviser, Columbia Management Advisors, Inc., which breached its duty to act at all times in the best interests of the Columbia mutual funds and to provide full and fair disclosure of all material facts to investors. Columbia Management Advisors is a registered investment adviser that manages Columbia mutual funds. Columbia Funds Distributor is a registered broker-dealer that is the principal underwriter and entity responsible for selling the funds. During the relevant period, both were subsidiaries of FleetBoston Financial Corporation.
The specific charges against the defendants in the federal court action are that they violated Section 17(a) of the Securities Act of 1933, Section 10(b) and Rule 10b-5 of the Securities Exchange Act of 1934, and aided and abetted Columbia' Distributor's violations of Section 15(c)(1) of the Exchange Act and Columbia Management Advisors' violations of Sections 206(1) and 206(2) of the Investment Advisers Act of 1940. The Commission is seeking injunctive relief, disgorgement and civil penalties.
For additional information see Litigation Release No. 18590 (February 24, 2004)