Body of Knowledge Elsewhere in the NSCP curriculum candidates learn about the rules and regulations and the compliance program efforts to comply with these rules and regulations. In the Enforcement section we present a cautionary tale using two case studies.
Readings
Learning Objective While the Kemper Distributors case was settled in May 2000 with a Letter of Acceptance, Waiver and Consent, it provides candidates with some valuable lessons. A successful candidate will be able to generalize from this case to anticipate the kinds of policies and procedures that would be reasonably expected to achieve compliance in areas other than advertising by fund companies. The second case describes alleged violations by Strong Capital Management and Canary Capital Partners in market timing and inadequate disclosures. The primary learning objective of this section, however, is for candidates to understand how a compliance system might prevent violations and the potential for negative publicity when the compliance system fails.
Learning Outcomes Kemper Distributors From April through September 1997, NASD Regulation alleged that Kemper Distributors published advertisements that were inaccurate and misleading. After reading these five documents candidates should be able to:
Strong Capital Management On May 20, 2004 the SEC found that Strong Capital Management (SCM) and some of it employees violated securities laws by allowing Canary Capital Partners and Richard S. Strong, SCM’s chairman, to engage in market timing and frequent trading. In September 2003 New York’s Attorney General alleged that SCM fraudulently allowed some shareholders to trade more frequently than others and more often than was allowed by the fund’s prospectus. The case against SCM was part of what has become collectively known as the 2003 mutual fund scandal.
The Canary Capital Partners reading describes trading strategies (pages 1-17, paragraphs 1 through 49) and their relationship with SCM (pages 38-41, paragraphs 93-95) as well as providing details of SCM’s prospectus disclosure of policies for controlling market timing. Candidates are NOT responsible for material regarding Bank of America, Nations Funds, Security Trust Company, Bank One, or Janus or for the paragraphs describing the causes of action (96-102). While these firms and paragraphs were material to the complaint, they are not relevant to this section of the curriculum.
SEC Cease-and-Desist Order Against Strong Capital Management and Others This reading describes the charges against SCM, the failure of SCM’s compliance program, and the remedies prescribed by the SEC. After reading these readings the candidate should be able to:
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