Securities Law Prof Blog

Editor: Eric C. Chaffee
Univ. of Toledo College of Law

Wednesday, January 20, 2010

SEC Settles Insider Trading Charges Against Former Mutual Fund Insider

The SEC settled insider trading charges against Charles J. Marquardt, a former Senior Vice President and Chief Administrative Officer for operations of Boston-based Evergreen Investment Management Company, LLC ("Evergreen").  The SEC charged Marquardt with insider trading in the shares of the Evergreen Ultra Short Opportunities Fund (the "Ultra Fund"), a mutual fund that invested primarily in mortgage-backed securities. Marquardt has agreed to pay approximately $40,000 to settle the charges.

The Commission's complaint alleges that, on June 11, 2008, Marquardt learned that the Ultra Fund might soon reduce the value it assigned to several of its mortgage-backed securities holdings, a move that would likely decrease the Fund's per-share net asset value ("NAV") and might cause the Fund to close. The complaint further alleges that, on the next day, June 12, 2008, Marquardt redeemed all of his Ultra Fund shares and caused a family member to do the same. Over the next several days, the Fund did, in fact, decrease the value it assigned to its holdings, triggering significant reductions of the Fund's NAV. On June 19, 2008, Evergreen publicly announced that the Ultra Fund would be liquidated. The Commission's complaint alleges that, by redeeming their Ultra Fund shares prior to the closing of the Fund on June 19, Marquardt and his family member avoided losses of approximately $4,803 and $14,304, respectively.

To settle the Commission's charges, Marquardt consented, without admitting or denying the allegations in the Commission's complaint, to the entry of a final judgment permanently enjoining him from violating Section 17(a) of the Securities Act of 1933 and Section 10(b) of the Securities Exchange Act of 1934 and Rule 10b-5 thereunder. Marquardt also agreed to pay $19,107 in disgorgement, representing the losses that he and his family member avoided, $1,242 in prejudgment interest, and a $19,107 civil penalty. In separate administrative proceedings to be instituted after the entry of the permanent injunctions, Marquardt has also consented to be barred from association with any broker, dealer or investment adviser, with a right to reapply after two years.

The Commission's action against Marquardt follows the Commission's enforcement action against Evergreen and an affiliated distributor, filed in June 2009, in which the Commission charged Evergreen with violating the federal securities laws in connection with, among other things, overvaluing holdings in the Ultra Fund from February 2007 to June 2008. Evergreen agreed to pay more than $40 million to settle those charges.

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