Byline: John Accola News Staff Writer
One of Colorado's largest money management firms - Englewood-based Meridian Investment Management Corp. - has agreed to pay $85,000 in fines to settle charges of false and misleading advertising.
The Securities and Exchange Commission issued a statement on the settlement Tuesday, citing the case as the latest in the federal government's crackdown on false advertising and inflated returns in the money management industry.
The SEC claims that for years Meridian, a $500 million investment adviser firm that recently established its own family of mutual funds, distributed advertising and other promotional materials that overstated investment returns by more than 5 percent.
Meridian attorney Robin Shipman said the SEC allegations, listed in an administrative complaint, involved promotional materials distributed by the company prior to late 1996, when Meridian managed a record $700 million in assets.
``These were past infractions that we certainly regret'' but are unrelated to the marketing of Meridian's flagship no-load Icon mutual funds, Shipman said.
Katherine Addleman, an enforcement director at the SEC in Denver, said that from 1993 to 1996 Meridian failed to deduct some commissions and mutual fund sales loads when advertising customers' investment returns.
That enabled Meridian to exaggerate investment returns in client newsletters, Internet postings, performance sheets and even figures submitted to rating services, she said.
The SEC ``cease and desist'' order against Meridian and its principal shareholders - former President Michael J. Hart and current President Craig T. Callahan - doesn't say why they inflated performance figures.
But Addleman said the company and its top officers ``intentionally and willfully'' failed to disclose commissions and mutual fund sales loads - costs that sometimes amounted to 5.5 percent of a customer's original investment.
``Individual investors were deceived about their true returns,'' Addleman said, noting that securities laws require investor-paid fees, such as finder's fees and commissions, to be deducted from advertised performance data.
Without admitting wrongdoing, Meridian agreed to pay a $70,000 fine. Hart, who resigned in April 1998, was fined $15,000.
Callahan, who served as Meridian's chief financial officer before becoming president, didn't pay a fine but is subject to stiffer sanctions if he commits similar violations in the future.
Although larger penalties have been imposed on advisers in recent years, the Meridian case should warn other investment companies that parade themselves as a step above their rivals, Addleman said.
``In this very competitive market, investment advisers are . . . tempted to make themselves seem better in an effort to get more clients,'' she said. ``This is an action against a firm for doing exactly that.''
In May, the SEC sanctioned a Boston-based investment adviser for allegedly inflating the size of the firm's investment portfolio 25-fold in advertising aimed at mutual and pension funds. Reservoir Capital Management and owner RoAnn Costine paid $75,000 in fines without admitting or denying the SEC charges.
Four years ago, a $1.5 billion Norfolk, Va., investment firm operating as Seaboard Investment Advisers agreed to pay $1 million in fines to settle false advertising claims about the performance of client assets.
Meridian, which manages $370 million in 11 sector funds, markets primarily to financial planners and regional brokers. The company's strategy is to operate as a so-called sector rotator, switching investments among portfolios that try to capitalize on the most profitable industries or areas of the world.
In November 1996, prior to introducing the Icon funds, Meridian stopped charging clients an origination commission. Last year, it also ceased investing mutual funds that charged a sales load.
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Craig T. Callahan.
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