The Securities and Exchange Commission (SEC) charged Boston-based Evergreen Investment Management Co. and an affiliate with securities law violations.
The SEC charged Evergreen with overstating the value of its Ultra Short Opportunities Fund, which was inflated by as much as 17% as a result of its improper valuation practices. The company also allegedly selectively told shareholders about the fund’s valuation problems.
Evergreen has agreed to pay more than $40 million to settle the SEC’s charges, neither confirming nor denying the findings. The SEC and Massachusetts Securities Division also brought related charges to the Evergreen entities. These entities agreed to pay $33 million to compensate fund shareholders and to pay the penalties totaling $4 million and the disgorgement of ill-gotten gains of around $3 million.
The mutual fund was consistently ranked as a high performer in its class in 2007 and 2008. The SEC’s order found that Evergreen overstated the fund’s value by failing to properly take into account readily available information about certain MBS in the valuation process. Had Evergreen properly valued the fund, it would have ranked near the bottom of its category during this time.
The fund’s portfolio management team also withheld negative information about certain of the fund's securities from an Evergreen committee responsible for valuations. Evergreen closed the Ultra Fund in June 2008 in the wake of substantial redemptions by fund shareholders following the firm’s re-pricing of the fund’s holdings.
“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,” said David Bergers, director of the SEC’s Boston Regional Office. “Evergreen harmed investors and prevented them from making informed decisions by overstating the value of its holdings in mortgage-backed securities.”
According to the SEC’s order, when Evergreen began to address the fund’s overstated value by re-pricing certain holdings, it only disclosed the reasons and the likelihood for additional re-pricings to select shareholders, who were then able to cash out before incurring any additional drop in the value of their fund shares. Meanwhile, other shareholders were left uninformed.
All of the money will be distributed to Ultra Fund shareholders pursuant to the provisions of the SEC’s order. The Evergreen entities were also censured and ordered to cease and desist from any further violations of certain federal securities laws.

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