The Securities and Exchange Commission

[Stock]

34-55730 May 9, 2007 Banc One Investment Advisors Corporation and Mark A. Beeson
Note: See also Modified Distribution Plan
http://www.sec.gov/litigation/admin/2007/34-55730.pdf

UNITED STATES OF AMERICA
Before the
SECURITIES AND EXCHANGE COMMISSION
SECURITIES EXCHANGE ACT OF 1934
Release No. 55730 / May 9, 2007
ADMINISTRATIVE PROCEEDING
File No. 3-11530
In the Matter of
BANC ONE INVESTMENT
ADVISORS CORPORATION
and MARK A. BEESON,
Respondents.
:::::::::
Order Approving a Modified Distribution Plan
I.
On June 29, 2004, the Commission issued an Order in the above-captioned matter
instituting and simultaneously settling public administrative and cease-and-desist proceedings
against Banc One Investment Advisors Corporation (“BOIA”) and Mark A. Beeson (the “BOIA
Order”). The BOIA Order found, among other things, that BOIA allowed excessive short-term
trading (or market timing) in certain One Group mutual funds (“One Group”) from June 1999
through May 2003 that was contrary to mutual-fund prospectuses and potentially harmful to
One Group shareholders. The BOIA Order directed that BOIA pay disgorgement of $10 million
and civil penalties of $40 million, for a total payment of $50 million, and established a Fair Fund
to provide for the distribution of those funds to injured investors. The Order further directed that
BOIA retain an Independent Distribution Consultant (“IDC”) and that BOIA require the IDC to
“develop a Distribution Plan for the distribution of all of the disgorgement and penalties to be
paid by BOIA pursuant to this Order, and any interest or earnings thereon, according to a
methodology developed in consultation with BOIA and acceptable to the staff of the
Commission and the independent Trustees of the One Group [Mutual] funds.” Under the BOIA
Order, BOIA retained Professor Joseph A. Grundfest to serve as the IDC.
On June 20, 2006, Professor Grundfest submitted a proposed distribution plan (the
“Plan”) that provides for the distribution of the $50 million paid by BOIA, plus accumulated
interest, to investors who held shares in at least one of the One Group mutual funds in which the
market timing occurred, on the days on which the market timing occurred, between June 1999
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and May 2003. As required by the BOIA Order, the Plan, among other things, “provide[s] for
investors to receive, in order of priority, (i) their proportionate share of losses from market
timing, and (ii) a proportionate share of advisory fees paid by funds that suffered such losses
during the period of such market timing.” (BOIA Order at ¶34(b)). In determining each
investor’s proportionate share of the Fair Fund, Professor Grundfest has developed an Allocation
Algorithm to determine the amount of the Fair Fund each investor will receive.
In accordance with the Commission’s Rules on Fair Fund and Disgorgement Plans (the
“Fair Fund Rules”), 17 C.F.R. § 201.1100, et seq., the Plan proposed a Fund Administrator and
sets forth, among other things, procedures for the receipt of additional funds; categories of
persons potentially eligible to receive proceeds from the BOIA Fair Fund; procedures for
providing notice to such persons of the existence of the fund and their potential eligibility to
receive proceeds; procedures for the administration of the fund; and a proposed date for the
termination of the BOIA Fair Fund.
Under the Plan, Boston Financial Data Services, Inc. (“BFDS”), proposed in the Plan as
the Fund Administrator, would not be required to post the bond generally required of third
parties under Fair Fund Rule 1105(c). Rather, the Plan incorporates several layers of protection
for the BOIA Fair Fund. Among other things, under the Plan: (1) the Fund Administrator will
have no custody, and only restricted control, of the BOIA Fair Fund; (2) the BOIA Fair Fund
will be held by the United States Department of the Treasury, Bureau of Public Debt
(“Treasury”) until immediately before checks or wires are transmitted to eligible investors; (3)
upon transfer from Treasury, funds will be held in an escrow account, separate from the assets of
the bank identified in the Plan (the “Bank”), until presentment of a check or wire; (4) upon
presentment of checks or wire instructions, funds will be subject to “positive pay” or similar
controls before honored by the Bank; (5) both the Bank and the Fund Administrator will
maintain, throughout this process, insurance and/or a financial institution bond that covers errors
and omissions, misfeasance, and fraud; and (6) the Bank will not control at any one time any
portion of the BOIA Fair Fund greater than the Bank’s insurance coverage.
On August 7, 2006, the Commission published the Plan and issued a Notice of Proposed
Distribution Plan and Opportunity for Comment (Exchange Act Release No. 54280) pursuant to
Rule 1103 of the Fair Fund Rules, 17 C.F.R. § 201.1103. In response to the Notice, the SPARK
Institute, Inc. (“SPARK”), the Coalition of Mutual Fund Investors (“CMFI”), Mr. W. Theodore
Kuck (“Kuck”) and Merrill Lynch & Co., Inc. (“Merrill Lynch”) submitted public comments to
the Office of the Secretary. In general, the SPARK letter seeks relief on behalf of intermediaries
for Non-IRA Retirement Accounts eligible for a distribution under the Plan from fiduciary
obligations and costs that may arise from distributions under the Plan. The CMFI letter, written
on behalf of individual mutual-fund investors, expresses concern that the Plan’s procedures for
identifying and distributing funds to the beneficiaries of omnibus accounts are insufficient, and
may result in investors not receiving their distributions. The Kuck letter, written by a beneficiary
of a trust account managed by Bank One Trust Company (“BOTC”), expresses concern
regarding the identification and compensation of the beneficiaries of BOTC managed accounts.
The Merrill Lynch letter requests that it be allowed to credit distribution funds electronically to
customer accounts and the addition of a limitation-of-liability provision to the Plan.
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After careful consideration, the Commission has concluded that the Plan should be
modified to include additional procedures applicable to Non-IRA Retirement Accounts and a
provision concerning limitation of liability, and should be approved with such modifications.
The Commission has further determined that, for good cause shown, the bond required under
Fair Fund Rule 1105(c) will be waived.
II.
A. Public Comments on the Plan
1. The SPARK letter
SPARK is an organization whose members include “retirement plan service providers
[“RSPs”] that will be responsible for reconstructing accountholder balance information, making
allocations, receiving proceeds, and making distributions to plan participants who are the
intended beneficiaries of a substantial portion of the distribution at issue.” SPARK
representatives raised two primary concerns in the comment letter: (1) the fiduciary obligations
that the Plan may impose on RSPs by requiring that “…the record holder shall distribute the
funds in accordance with applicable guidance …issued by the Department of Labor [DOL]1”;
and (2) the potentially burdensome costs that RSPs may have to bear in allocating distribution
funds to the beneficiaries of those accounts.
The Commission staff, Professor Grundfest, and SPARK’s General Counsel met to
discuss SPARK’s concerns regarding Non-IRA Retirement Accounts (which represent less than
4% of the BOIA Fair Fund). Based on these discussions, Professor Grundfest recommends
modifying the Plan to: (1) provide Non-IRA Retirement Accounts and plan-level fiduciaries with
alternative methodologies for distribution that will likely significantly reduce the costs of the
distribution; and (2) inform Non-IRA Retirement Accounts of their distribution amounts before
the funds are actually distributed to them, to allow them time to determine an appropriate
distribution methodology and to advise the plan fiduciary accordingly.
1 The DOL issued Field Assistance Bulletin No. 2006-01 (April 19, 2006) (“FAB”) regarding Fair Fund
distributions to retirement plans in market-timing and late-trading matters and the duties of IDCs and retirementplan
record-keepers and plan fiduciaries. Among other things, the FAB provides that record-keepers that receive
distributions on behalf of their employee benefit clients generally will assume fiduciary obligations. The FAB
explains that record-keepers may consider whether the costs of effectuating a distribution outweigh any benefit to
the intended beneficiaries as well as other alternatives that would be consistent with its fiduciary obligations. The
FAB also describes that record-keepers may avoid assuming fiduciary status if they allocate funds according to the
methodology set forth in the Plan or if the plan-level fiduciary approves of a distribution methodology determined
by the record-keeper.
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2. The Merrill Lynch letter
Merrill Lynch, one of the omnibus intermediaries that is expected to receive a distribution
under the Plan, raised two concerns in a comment letter. First, the comment letter noted that the
Plan did not provide a “protocol” for distributing funds to the subset of opaque omnibus
intermediaries that opt to have BFDS [Boston Financial Data Services, Inc.] calculate
distribution amounts for its beneficiaries. The comment letter further stated that mailing checks
to those beneficiaries would require the unnecessary disclosure of personal identifying
information and other sensitive customer data and requested that Merrill Lynch be allowed to
credit funds electronically to customer accounts. Professor Grundfest and BOIA are working
with Merrill Lynch to implement its request to electronically credit customer accounts, for which
changes to the Plan are unnecessary.
Second, Merrill Lynch’s comment letter noted that the Plan does not contain a limitationon-
liability provision for intermediaries “authorized to assist in the administration of the Fair
Fund” and that Merrill Lynch would expect any such intermediaries to be covered by a
limitation-on-liability provision. Professor Grundfest has added a limitation-on-liability
provision to the Plan. However, the Commission cannot advise any such intermediary whether
or under what circumstances this provision would apply, because whether the limitation would
apply would depend upon the individual facts and circumstances for each intermediary. The
provision at page 8 of the Plan further notes that “this paragraph … is not intended, nor should it
be deemed to be, a representation to or an indemnification of the IDC or the Fund Administrator
or their designees, agents and assistants by the Commission or the QSF [Qualified Settlement
Fund]….”
3. The CMFI letter
CMFI represents the interests of individual mutual-fund investors. In the comment letter,
the Executive Director of CMFI expressed a concern that the Plan’s procedures for identifying
and distributing funds to the beneficiaries of omnibus accounts are insufficient, and may result in
investors not receiving their distributions. He further commented that the Plan does not consider
potential market-timing activities by others who are not the subject of the BOIA administrative
proceeding.
The Commission staff and Professor Grundfest met with CMFI’s Executive Director to
address these concerns. Professor Grundfest represented that BFDS and BOIA have already
approached all known opaque omnibus intermediaries and obtained account information
representing 99.5% of the Fair Fund. This information rendered the bulk of CMFI’s concerns
moot. Further, the concern that the Plan does not evaluate possible market-timing activities of
others outside of the administrative proceeding misinterprets the directive of the Order, which
does not require Professor Grundfest to determine whether others engaged in market timing in
the One Group mutual funds.
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4. The Kuck letter
Mr. Kuck is a beneficiary of a trust account managed by Bank One Trust Company
(BOTC), which invested in the One Group mutual funds at issue in the Order. In his comment
letter, Mr. Kuck expressed his concern that those beneficiaries may not receive a distribution to
which they are entitled because the Plan does not specifically provide assurances that the
beneficiaries of the trust account will be identified and properly compensated. In addressing this
concern, Professor Grundfest has represented that BFDS and BOIA have identified the
underlying beneficiaries of the accounts managed by BOTC and that these beneficiaries will
receive a distribution.
B. Recommended Modifications to the Plan
In summary, Professor Grundfest recommends adding the following provisions to the
Plan:
• a procedure for notifying Non-IRA Retirement Accounts entitled to $1,000 or
more of their respective final distribution amount in advance of distributing funds
to those accountholders (Plan, ¶15(d)(a));
• language specifying the timing of distributions to Non-IRA Retirement Accounts
(Plan, ¶15(d)(b));
• alternative, less costly, distribution methodologies for Non-IRA Retirement
Accounts (Plan, ¶¶15(d)(c)(i)(ii)); and
• a limitation-of-liability provision (Plan, p. 8).
These modifications provide additional flexibility and further facilitate distribution of the
Fair Fund, but do not substantially alter the previously published Plan. The Commission, in its
discretion, does not believe that further modifications are necessary or that the recommended
additions require re-publication of the Plan for further public comment.
C. The Bond Requirements of Fair Fund Rule 1105(c)
Fair Fund Rule 1105(c) provides:
Administrator to Post Bond. If the administrator is not a Commission employee,
the administrator shall be required to obtain a bond in the manner prescribed in
11 U.S.C. 322, in an amount to be approved by the Commission. The cost of the
bond may be paid for as a cost of administration. The Commission may waive
posting of a bond for good cause shown.
17 C.F.R. § 201.1105(c). The Commission believes that the risk-protection provisions of the
Plan, discussed on page 5 in the “Appointment of an Administrator for the Fair Fund” section,
constitute good cause for waiving the posting of the bond under Rule 1105(c).
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III.
Accordingly, IT IS ORDERED that:
A. Pursuant to Rule 1104 of the Fair Fund Rules, 17 C.F.R. § 201.1104, the Distribution
Plan is modified as described above, and approved with such modification;
B. Pursuant to Rule 1105 of the Fair Fund Rules, 17 C.F.R. § 201.1105(a), Boston Financial
Data Services, Inc. is appointed as the Administrator of the Plan in accordance with the
terms of the Plan; and
C. The bond requirement of Rule 1105(c) of the Fair Fund Rules, 17 C.F.R. 201.1105(c), is
waived for good cause shown.
By the Commission.
Nancy M. Morris
Secretary