SEC ANNOUNCES SETTLEMENT WITH COLLEGE SAVINGS PLAN FOR UNTRUE STATEMENTS AND OMISSIONS
FOR IMMEDIATE RELEASE
First-Ever Case Prompts Commission Guidance on Section 529 Educational Savings Plans
Washington, D.C., Aug. 4, 2005-The Securities and Exchange Commission today announced a settled cease-and-desist proceeding against the Utah Educational Savings Plan Trust (UESP) for untrue statements and omissions by the UESP concerning errors in its systems of operation and its method of accounting for investor transactions. The UESP administers a Section 529 educational savings plan for Utah.
In announcing its first ever charges against a Section 529 savings plan, the SEC also issued an investor guide that explains the basic information investors should know before they start saving for college. The guide discusses the different types of college savings plans, including their disclosures, tax implications and their fees and expenses.
While conducting an investigation of Dale C. Hatch, its former director, the USEP discovered flaws in its system of operation and accounting practices that failed to fully allocate investor gains and losses to investor accounts. The UESP also determined that certain of those unallocated gains had been misappropriated by Hatch. However, the UESP publicly mischaracterized the misappropriated funds as "administrative" and falsely claimed that investors had not been harmed. The UESP also provided inadequate disclosure about the flaws in its operations and accounting practices.
In settling the proceeding, the Commission ordered the UESP to fully refund investor accounts and undertake specific measures to correct the defects of its system. The Commission also ordered the UESP to cease and desist from further violations of Section 17(a)(2) of the Securities Act of 1933.
Separately, the Commission has filed a civil action against Hatch in federal court alleging he violated the securities laws by segregating $505,976 of unallocated participant funds into his own undisclosed nominee UESP accounts and transferring $85,000 of those funds to his personal bank accounts. That action seeks an injunction from future antifraud violations, disgorgement and civil money penalties.
"The USEP discovered its system for recording and accounting for investor transactions was flawed, but failed to disclose some of those defects and the risks posed to investors," said Kenneth D. Israel, Jr., District Administrator of SEC's Salt Lake District Office. "The Commission's action ensures the return of investor funds, that UESP will fix its system, and that material facts related to investor transactions and earnings will be disclosed."
The UESP consented to the entry of the Commission's order without admitting or denying the Commission's findings. In determining to accept the settlement, the Commission considered the UESP's cooperation in the SEC investigation. The UESP has already repaid its investors in full.
A 529 plan is a tax-advantaged savings plan designed to encourage saving for future college costs. 529 plans, legally known as "qualified tuition plans," are sponsored by states, state agencies, or educational institutions and are authorized by Section 529 of the Internal Revenue Code.
The Commission's new guidance explains the many differences between 529 plans, which vary from state to state, including their disclosures and tax implications.
"The best way to make an informed decision about any college savings plan is to understand its terms," said SEC investor education director Susan Ferris Wyderko. "While our new guide is a good place to start, a college savings plan's disclosure documents remain required reading."
The Commission's investor guide on Section 529 education savings plans is available at www.sec.gov/investor/pubs/intro529.htm
See also: Administrative Proceeding
For more information about the UESP settlement, contact:
Kenneth D. Israel, Jr.
For more information about the investor guide, contact:
Investor Education and Assistance Deputy Director