Articles Posted in Evergreen

Charles Marquardt, Evergreen Investment Management Co. LLC‘s former chief administrator, has settled charges filed by the US Securities and Exchange Commission that he sold Evergreen Ultra Short Opportunities Fund shares after obtaining insider information that a number of the MBS holdings were going to drop down in value. Marquardt worked for Evergreen at the time he allegedly engaged in insider trading and served as the Evergreen Ultra Short Opportunities Fund’s investment adviser. The mutual fund mostly invested in mortgage-backed securities.

On June 11, 2008, he allegedly found out about the likely decrease in value of several of its MBS holdings and that there was a possibility that the Ultra Fund could end up shutting down. Marquardt is accused of having redeemed all of his shares the following day. One of his family members also sold Ultra Fund shares. Marquardt and his relative avoided incurring $4,803 and $14,304 in financial losses, respectively. The fund was liquidated on June 19 of that year.

To settle the charges against him, the investment adviser has agreed to a bar from future violations, as well as to a two-year industry bar. He will pay a $19,107 civil penalty, $1,242 in prejudgment interest, and $19,107 in disgorgement. By settling, Marquardt is not admitting to or denying wrongdoing.

Evergreen Investment Management Co., which distributes Evergreen mutual funds and related entities, has settled Securities and Exchange Commission charges that the Ultra Short Opportunities Fund was overvalued and that the problem was only disclosed (in a selective manner) to certain shareholders.

To settle the allegations, the distributor will pay over $40 million.The SEC says the settlement amount is a reflection of the respondents cooperation and “remedial acts.” $33 million will compensate fund shareholders, $3 million is for the disgorgement of ill-gotten gains, and $4 million is for penalties.

Also, Evergreen Investment Services, a broker-dealer and distributor, and Evergreen Investment Management Co. LLC, an investment adviser, say they will pay $1 million to settle similar charges made by the Massachusetts Securities Division. The state of Massachusetts is mandating that the firms hire an independent compliance consultant to evaluate internal procedures for valuing portfolio securities and preventing the misuse of nonpublic, material data. The consultant will present these findings to the Massachusetts Securities Division and the Evergreen funds’ board of trustees. William Galvin, who is the Massachusetts Secretary of the Commonwealth, says the orders should remind the mutual fund industry that proper fund supervision is necessary.

For 2007 and 2008, Ultra Short Fun was regularly regarded as a high performer among its peers. The defendants are accused of inflating the fund’s value by up to 17%, in part due to a failure to factor in information about MBS. The fund’s portfolio management team is also accused of holding back negative data from the Evergreen committee in charge of the valuations. The SEC says the fund would have fallen closer to the bottom if it had been ranked correctly.

In an attempt to deal with the valuation issues, the respondents repriced certain holdings and told only certain shareholders about the repricings and of the possibility that more were likely to come. This gave the parties that were informed of the repricings an advantage over the shareholders that did not know there was an issue. The shareholders that were given this information were able to redeem their investments to avoid more losses. This was “to the detriment” of those that were uninformed of the repricings and stayed invested. Also, new purchasers ended up paying more than the shares actual value.

After the repricings occurred, the fund experienced significant redemptions and closed in June 2008.

Related Web Resources:
SEC Charges Evergreen for Overvaluing Holdings in Mortgage-Backed Securities and Making Selective Disclosures to Investors,, June 8, 2009
Regulators: Fund firm hid losses,, June 9, 2009 Continue reading