FOR IMMEDIATE RELEASE 99-175 Scudder Kemper Investments Censured, Fined $250,000 in Connection With Unauthorized Derivatives Trading Resulting In Losses Exceeding $16 Million Boston, MA, December 22, 1999 -- The Securities and Exchange Commission today censured and fined Scudder Kemper Investments, Inc. and sanctioned two former employees in connection with unauthorized derivatives trading that resulted in more than $16 million in investor losses. The Commission found that Scudder and its derivatives trading supervisor failed to reasonably supervise a derivatives trader and that Scudder had inadequate oversight controls and procedures. Without admitting or denying the charges: Scudder agreed to be censured and pay a $250,000 fine; Gary Paul Johnson, formerly the head of derivatives trading at Scudder's Boston office, agreed to a one-year suspension and a $10,000 fine; and Michael T. Sullivan, III, formerly a trader under Johnson's supervision, agreed to be barred from the industry for five years. The Commission found that, in September 1996, Scudder's derivatives trading desk implemented a new derivatives trading strategy designed to take advantage of short-term movements in the U.S. Treasury futures market. According to the Commission, Sullivan was given limited discretion, under the new trading strategy, to execute derivatives trades in twenty of Scudder's investment advisory accounts, subject to certain limitations imposed by the portfolio managers for the participating accounts. The types of limitations on Sullivan's discretion included basis point loss limits, duration limits, and limits on the losses that could be incurred on any individual transaction. The Commission further found that Johnson, Sullivan's direct supervisor, was responsible for supervising Sullivan's derivatives trading under the new strategy and ensuring that the limits established by the portfolio managers were followed. The Commission found that from July 1997 through October 1998 Sullivan executed more than one hundred unauthorized transactions in twelve of the accounts participating in the new trading strategy, including the accounts of eight registered investment companies, by repeatedly exceeding loss limits and other limits on his discretion. The Commission further found that Sullivan avoided detection by miscoding order tickets, forging the signatures of the portfolio managers on order tickets and, in many instances, not submitting any order ticket at all. According to the Commission's findings, Sullivan's unauthorized trading rendered inaccurate the books and records of Scudder and several of Scudder's investment company clients. The Commission found that Scudder, through Johnson, failed reasonably to supervise Sullivan because Johnson failed to detect or prevent Sullivan's failure to submit order tickets, his forgery of portfolio managers' signatures on order tickets, and his continued trading after he had exceeded the portfolio managers' loss limits. In addition, the Commission found that Scudder's controls and procedures were not designed reasonably to prevent and detect Sullivan's activities. Juan Marcel Marcelino, District Administrator of the Commission's Boston District Office said, "Without adequate supervision as a means to prevent and detect fraud, investors' assets can be placed in great jeopardy. Investment advisors and their supervisory personnel must ensure that proper supervisory and monitoring procedures are in place prior to implementing new investment strategies." The Commission accepted Scudder's and Johnson's offers of settlement, in which they agreed, without admitting or denying the findings, to an order: (1) censuring Scudder; (2) requiring Scudder to cease and desist from committing or causing any violations of the books and records requirements of the Investment Advisers Act, and from causing any violations of the books and records requirements of the Investment Company Act; (3) imposing on Scudder and Johnson civil penalties of $250,000 and $10,000, respectively; (4) suspending Johnson from associating with any investment adviser for three months, and from acting in a supervisory capacity with any investment adviser for an additional nine months; and (5) requiring Scudder to perform various undertakings. The Commission found that Scudder agreed to reimburse the losses in all affected accounts. The Commission also accepted Sullivan's offer of settlement, in which he agreed, without admitting or denying the findings, to an order: (1) barring him from association with any investment adviser or investment company, with the right to reapply for association after five years; and (2) requiring him to cease and desist from committing or causing any violations of the antifraud provision of the Investment Company Act, and from causing any violations of the antifraud provisions of the Investment Advisers Act and the books and records requirements of the Investment Company Act and the Investment Advisers Act. The Commission did not impose a financial penalty on Sullivan based upon his inability to pay. For further information contact: Juan Marcel Marcelino at (617) 424-5934. # # #