SEC Charges an Investment Adviser and a Portfolio Manager with Fraud and Causing a Money Market Fund to Violate Rule 2a-7

December 18, 2013

The U.S. Securities and Exchange Commission (SEC) recently instituted public administrative and cease-and-desist proceedings against Ambassador Capital Management, LLC, a Detroit-based registered investment adviser (ACM), and one of its employees who served as the primary portfolio manager of the Ambassador Money Market Fund (Fund). The SEC alleges that ACM and the portfolio manager deceived the Fund’s board of trustees (Board) and caused the Fund to violate Rule 2a-7 under the Investment Company Act of 1940 (1940 Act), the rule governing money market fund investments and operations.

This OnPoint describes the role of the SEC’s Division of Investment Management (Division) in uncovering the alleged fraud through an analytical review of the Fund’s performance data and portfolio information. It then discusses the alleged fraudulent conduct and other alleged violations of the federal securities laws. Finally, the OnPoint suggests possible measures that can be taken to detect (and, perhaps, prevent) the types of conduct alleged by the SEC.

Read "SEC Charges an Investment Adviser and a Portfolio Manager with Fraud and Causing a Money Market Fund to Violate Rule 2a-7."