WASHINGTON (AP) — An investment fund owned by Wells Fargo & Co. has agreed to pay $40 million to settle federal charges that it inflated the value of a mutual fund that invested mainly in securities tied to home mortgages and only selectively told shareholders about the fund's problems.
The Securities and Exchange Commission on Monday announced the settlement with Boston-based Evergreen Investment Management Co., which did not admit or deny wrongdoing.
Evergreen and an affiliate agreed to pay $33 million to compensate fund shareholders, as well as civil fines totaling $4 million and around $3 million in restitution of allegedly ill-gotten gains.
San Francisco-based Wells Fargo acquired Wachovia Corp., Evergreen's parent company, in a $12.7 billion deal that closed Jan. 1. Evergreen had 76 mutual funds and $164 billion assets under management as of March 31.
Evergreen spokeswoman Laura Fay said it was in the best interests of the company and its clients "to resolve this matter and move forward."
The SEC alleged that Evergreen and its fund distributor, Evergreen Investment Services Inc., improperly valued the Ultra Short Opportunities Fund, which was ranked as a high performer in its class in 2007 and 2008.
If the fund had been accurately valued by Evergreen, it would have ranked near the bottom of its category during that period, the SEC said.
When Evergreen did assign more realistic values to some mortgage-backed securities held in the fund, it only let "select" shareholders know the reasons for the change and the likelihood of additional revisions in the future, according to the SEC. Those investors were able to cash out their shares in the fund and avoid losses, while other shareholders were left in the dark, the agency said.
The fund's management team also withheld the negative information on the securities from an Evergreen committee responsible for valuations of holdings, the SEC alleged.
Evergreen closed the Ultra Short Opportunities Fund in June 2008 following substantial cash-outs by shareholders after the holdings were re-priced.
"By picking and choosing to disclose negative information to some investors and not others, Evergreen gave certain shareholders an unfair advantage and left others in the dark," David Bergers, director of the SEC's regional office in Boston, said in a statement. "Evergreen harmed investors and prevented them from making informed decisions by overstating the value of its holdings in mortgage-backed securities."
by the associated press
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