Evergreen Ultra Short Opportunities Fund Settlement Reached for $40M
Wachovia Bank’s investment management arm, Evergreen Investment Management Co., will pay $40 million to the Securities and Exchange Commission (SEC) to settle charges that it inflated the value of their mortgage-backed Ultra Short Opportunities Fund, and then only informed select investors when the fund ran into trouble.
The Evergreen Ultra Short Opportunities Fund settlement with the SEC and the Massachusetts Securities Division was announced last week, resolving enforcement actions that alleged Evergreen inflated the value of the fund by as much as 17 percent, making it appear to be one of the strongest of its class in 2007 and 2008, when in fact it was one of the weakest.
The SEC charged that not only did Evergreen artificially inflate the value of the fund, but it also only informed favored shareholders when the fund’s value was going to be adjusted, allowing them to cash out before the fund went into freefall.
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Evergreen will pay $33 million to shareholders, $4 million in penalties to the SEC, $1 million in penalties to the state of Massachusetts, and $3 million to offset profits the company realized from its actions.
The fund was liquidated in June 2008 after it had lost 20% of its value. The fund was propped up in part by mortgage-backed securities that included subprime loans. Wachovia Corp. was bought by Wells Fargo & Co. late last year. Evergreen does not admit nor deny the allegations with the settlement.
While the $33 million will be distributed to customers, the settlement does not resolve Evergreens potential liability through Ultra Short Opportunities Fund class action lawsuits and the individual investor claims.
A number of investors are continuing to pursue Evergreen Ultra Short Opportunity Fund lawsuits and arbitration claims to recover their individual losses, alleging that the fund was also promoted and sold as a relatively safe investment that would generate income without substantial fluctuations in share value.
Many investors selected Evergreen Ultra Short because they needed to preserve capital and believed the fund to be conservative. However, fund managers invested more than 70% of the fund’s assets in risky sub-prime mortgage securities.
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