In January, Worth Bruntjen, portfolio manager of Piper Capital Managements (PCM) beleaguered Institutional Government Income Portfolio fund, settled fraud charges brought against him by the SEC, agreeing to a five-year suspension and a $100,000 fine. Bruntjen settled without admitting any guilt.
The SEC says the fund was portrayed as conservative in promotional materials but had invested 90% of its assets in highly volatile derivatives. PCM was the money management unit of Minneapolis-based regional brokerage Piper Jaffray prior to U.S. Bancorps purchase of the firm in May 1998.
While the SEC pursues its case against PCM and other individuals implicated in the funds derivatives debacle, it appears unlikely that anyone from Piper Jaffrays executive management ranks will be held accountable. A hearing before an SEC administrative law judge was set for Feb. 16 in Minneapolis, the home of PCM and its parent U.S. Bancorp.
Its likely that the case will go to trial, more likely than not, SEC Midwest Regional Director Mary Keefe says. The commission is always interested in considering a settlement, but I dont predict one in this case.
Conspicuously absent from the list of other individuals named in the case are any Piper compliance, sales or marketing executives, which appears odd given the fact that the SEC specifically charged that the funds annual reports, prospectuses, marketing and other materials and communications were misleading to investors. The fund was pitched to municipalities and individuals as an alternative to CDs and money market accounts.
A July 1998 SEC filing on the case makes it clear that the SEC holds PCM and the two portfolio managers accountable for claims made in the funds prospectus and marketing pieces.
Our investigation was really focused on the investment management side of this issue, Keefe says, adding that the SEC looked at marketing and compliance people in its investigation. I cant really talk to you about how we came to the decisions we did, on the people we charged or didnt charge. Our issues are clearly the investment management issues.
The NASD also investigated the PCM case, and fined Piper Jaffray $1.25 million in March 1996. The SRO did not cite any individuals.
In addition to targeting PCM, the SEC continues to pursue related charges against Bruntjens partner, portfolio manager Marijo Goldstein. The SEC has also leveled failure-to-supervise charges against Edward Kohler, who supervised Bruntjen and Goldstein.
Three other PCM employees face price-manipulation charges brought against them by the SEC--a manager of PCMs mutual fund accounting department, an accounting manager and a staff accountant. All three of those individuals, plus Goldstein, now work at First American Asset Management, part of U.S. Bancorp.
We think all of our employees acted in good faith, says a U.S. Bancorp spokesperson. Were standing behind our employees.
PCM now operates as a shell corporation and all of its funds have been incorporated into the First American Funds.
Piper has paid out more than $130 million to settle several class-action lawsuits brought in connection with the fund.