March 4, 2004 — The Securities and Exchange Commission has told the investment adviser to the Fremont Funds that it plans to recommend that civil action be brought against the firm in connection with improper trading activities.
Fremont Investment Advisers received a Wells notice from the SEC on January 29, the firm disclosed in a regulatory filing Wednesday. The notice indicates that the SEC staff has made a preliminary decision to recommend that the agency initiate a civil action.
The firm said a current employee and “at least one” former employee, both of who were formerly officers of the funds, also received Wells notices. The employees’ names were not disclosed.
The SEC’s action could lead to “increased redemptions” in the funds, or result in other “adverse consequences,” Fremont said. But Fremont said it does not believe the matter will have a “material adverse effect” on the funds, or the investment adviser services it provides to them.
Fremont said in January that the SEC had begun investigating the company and trading in its funds.
The company said in November that it had uncovered instances of rapid-fire trading in its funds. Fremont said at that time that it had taken steps to “reinforce” its policies and procedures for detecting and preventing so-called market timing arrangements, which allow certain shareholders to rapidly buy and sell fund shares.
The San Francisco-based firm said in its filing that it will compensate shareholders for losses “attributed to excessive short-term trading,” and will return advisory fees resulting from this type of trading.