THE VIRGINIAN-PILOT
Copyright (c) 1994, Landmark Communications, Inc.
DATE: Friday, August 5, 1994 TAG: 9408050560
SECTION: BUSINESS PAGE: D1 EDITION: FINAL
SOURCE: By TOM SHEAN, STAFF WRITER
LENGTH: Medium: 74 lines
The Norfolk money-management firm Seaboard Investment Advisers Inc. has agreed to pay $1 million to settle federal allegations that it used false or misleading information when advertising its financial performance.
The fine was part of a cease-and-desist order issued Thursday by the Securities and Exchange Commission, which also contended that Seaboard broke federal laws by failing to maintain and preserve records demonstrating its investment performance.
The SEC said the investment company and its senior executives - chairman Eugene W. Hansen and president Stewart M. Powers Jr. - agreed to the settlement terms without admitting or denying the SEC's allegations.
The $1 million penalty was ``in the upper range'' of fines imposed for violating the Investment Advisers Act, said Donald M. Hoerl, head of the SEC's Philadelphia office, where the Seaboard case was handled. ``It demonstrates the commission's concern that investment advisers' advertising of their performance be accurate.''
In addition to paying a fine, Seaboard agreed to have its investment-performance figures audited every six months from 1994 through 1998 by an independent auditing firm.
Seaboard also agreed to hire a specialist to review and recommend changes in its policies and procedures for advertising and maintaining books and records.
Seaboard also must appoint a full-time vice president for compliance and must change some of its record-keeping procedures.
The SEC's allegations did not involve the portfolios of Seaboard's clients, said Powers, the company's chief operating officer.
``We had some holes in our documentation, but in no way have we been criticized on the way we managed money or what we reported to clients,'' he said.
Seaboard manages more than $1.3 billion of assets, much of it for pension and retirement programs.
Organized in 1984, Seaboard is owned largely by Hansen and Powers. Four outside directors - Gerald S. Divaris, Andrew S. Fine, J. Alan Lindauer, and Peter M. Meredith Jr. - also own small stakes in the company, according to a Seaboard filing with the SEC. The company has 28 employees and offices in Norfolk and Denver.
In its order, the SEC said Seaboard violated the Investment Advisers Act by using figures for Hansen's and Powers' investment results when they were at previous employers. Seaboard, the SEC said, did not disclose the sources of these figures and could not document them. The SEC also said Seaboard derived some of its performance figures by using hypothetical data.
However, the company failed ``to disclose that advertised performance was based on a select group of accounts or that the composition of this select group varied from quarter to quarter,'' the SEC said.
The SEC also alleged that Hansen and Powers ``willfully aided and abetted Seaboard's violations.'' As part of the settlement, Hansen and Powers must attend at least one professional education course annually for the next three years.
After challenging the SEC's allegations, Seaboard decided to negotiate a settlement and put the dispute behind it, Powers said. When the SEC announced the charges last fall, ``we took a very aggressive stance.'' However, ``we ended up getting into a war of words.''
The SEC's scrutiny of Seaboard began in 1991 as a routine examination, Powers said. ``They came back in May 1992, and they called in November 1992 to say their examination had raised concerns about our marketing,'' he recalled.
While dealing with the SEC's allegations, Seaboard lost some of its clients, but the number was smaller than what the company expected, Powers said.
In the process of meeting the settlement terms, Seaboard hired the accounting firm Coopers & Lybrand to audit its investment performance as far back as 1988 and to restate the results, Powers said. by CNB