mazlack@ernie.BERKELEY.EDU (Lawrence J. &) (01/15/86)
A little while ago, there was a discussion of possible loss due to
inappropriate behavior on the partt of the financial intermediary and
how much you could recover through insurance, etc.
Well, I now have problems with a mutual fund and am passing along the
information for general amusement.
The fund is: UNITED SERVICES "PROSPECTOR"
United Services runs a family of funds. Most of their stuff is aimed at
gold bugs and the like. Well, owning a little gold for diversifications
sake seemed like a good idea at the time. PROSPECTOR is a fund that
owns shares only in gold mines, and in gold mines outside of South Africa.
They were bad boys in the following ways:
(1) They bought more of several different stocks than they should have -
The fund prospectus said that they could not own more than x% of any
given stock and any given stock could not be more than y% of the total
PROSPECTOR portfolio. They violated both of these conditions.
(2) They overvalued their portfolio. In other words, they set the N.A.V.
or net asset value too high. The problem with doing this is that
when you buy an open end mutual fund (as most are), you pay the N.A.V.
If the portfolio is overvalued and then subsequently correctly valued,
the people who bought at the overvalued price loose money - even if
the true value of the underlying stock does not change.
(3) They claimed expenses in running the fund that were not legitimate.
All of this comes to about $13.5 million dollars of near fraud. The insurance
situation is murky. There is a $5 million and a $2.5 million policy. Right
now, maybe only the $5 M policy might be paid off. Any insurance payoff
might require that the Advisor (the joker running the fund) be liquidated
first. The advisor is worth about $2.5 M. All of this will take a LOT of
time to sort out.
The Advisor also tried to get cute by involving two different accounting
firms - almost always an attempt to cheat somehow. So far, it didn't
work.
How much this is worth distributed accross all of the PROSPECTOR shareholders
is really hard to say. They are not publishing the stuff that they are
required to by the SEC. At least not so far. However, an optimistic guess
is that if all of the $13.5 M is recovered, the NAV would double.
Anyone holding one of the other MUTUAL SERVICES funds also is at risk.
Current PROSPECTOR shareholders may have a claim against some ot the other
assets of the other funds.
...Larry Mazlackgdykes@lasspvax.UUCP (Gene Dykes) (01/20/86)
In article <11404@ucbvax.BERKELEY.EDU> mazlack@ernie.UUCP (Lawrence J. Mazlack) writes: >The fund is: UNITED SERVICES "PROSPECTOR" > >Current PROSPECTOR shareholders may have a claim against some ot the other >assets of the other funds. > >...Larry Mazlack Supposing I'm a current shareholder in the Prospector Fund, if I redeem my position now am I giving up all rights to any money that is returned later via the insurance claims? Do I have to stick it out or can I get out now and still benefit from insurance claims? -- Gene Dykes, 120 Rand Hall, Cornell U., Ithaca, NY 14853 (607)256-4880 {ihnp4,decvax,allegra,vax135}!cornell!lasspvax!gdykes gdykes@lasspvax.arpa
mazlack@ernie.BERKELEY.EDU (Lawrence J. &) (01/22/86)
>>The fund is: UNITED SERVICES "PROSPECTOR" >> >>Current PROSPECTOR shareholders may have a claim against some ot the other >>assets of the other funds. >> >>...Larry Mazlack > >Supposing I'm a current shareholder in the Prospector Fund, if I redeem my >position now am I giving up all rights to any money that is returned later >via the insurance claims? Do I have to stick it out or can I get out now >and still benefit from insurance claims? A good question. The answer is I don't know for sure. If there was a law suit for damages, I think that the shareholders who were damaged, irregardless of their current holdings, would get a pro-rata share of the settlement. However, as the insurance has the fund as the beneficary, I think that you have to stick it out to recover. I.e., anything that comes in becomes part of the assets of the fund. Likewise, there are substantial fees that the Advisor took that he wasn't entitled to. The Advisor will (one way or the other) probably end up repaying all or some of them. I think that these also become fund assets for division by the existing shareholders. Obviously, the happier path would be to sell out now, and recover later. But, I don't think that this will happen. But, I do wish that I was a lawyer in Texas (where the fund is located), so I could try the courts. ...Larry Mazlack