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SEC Charges Money Fund Manager with Fraud

Last week, the SEC charged Ambassador Capital Management and Derek Oglesby for repeatedly making “false statements to trustees of the Ambassador Money Market Fund about the credit risk in the securities they purchased for its portfolio.  Trustees also were misled about the fund’s exposure to the Eurozone credit crisis of 2011 and the diversification of the fund’s portfolio.”  According to the SEC’s order, the fund also failed to comply with Rule 2a-7, the rule governing money market funds, by failing to determine whether the securities purchased by the fund posed “minimal credit risk,” violating the rule’s issuer diversification requirements, and not conducting appropriate stress testing of the portfolio.  Further, the SEC charged that the adviser failed to “implement adequate written compliance policies under Rule 38a-1 of the Investment Company Act.”

The SEC stated that it was alerted of the issues at the Ambassador Money Market Fund through the Division of Investment Management’s analysis of money market fund data, specifically using gross yields of money market funds as a marker of risk.  In the SEC’s press release announcing the charges, Norm Champ, the Director of the Division of Investment Management, stated “This is an excellent example of how our investment in data analysis leads directly to investor protection.  With a team of specialists who understand these products working alongside financial analysts, we can produce solid information for examination and enforcement use.”