On Friday, the Bank of Hawaii Corporation announced that it has received a so-called “Wells notice” from the staff of the Pacific Regional Office of the Securities and Exchange Commission. Also receiving notices were the Pacific Capital Funds, the Asset Management Group of Bank of Hawaii (which serves as a registered investment adviser to those funds), as well as four present or former officers of the Bank (three of whom also are serving or have served in a significant capacity with the funds). These notices, which indicate that the staff is considering whether to recommend that the SEC bring civil enforcement actions against the recipients for possible violations of the federal securities laws, all relate to possible civil enforcement actions for alleged market timing and/or excessive trading in the Funds in 2002 and 2003 by an individual whose employment subsequently was terminated, according to a bank press release.
The former employee, who was not involved in the management of the PCF funds’ portfolios and did not provide investment advice to bank customers, traded his personal funds through an omnibus account in which his retirement assets were invested (the activity was reported in the local media in February 2004). According to the press release, bank management believes that the former employee may have increased the value of his retirement account by approximately $110,000 (based upon a “Next Day NAV” calculation) as a result of alleged market timing primarily in the bank’s New Asia Growth Fund.
The bank, the funds, and their service providers have subsequently enhanced procedures to detect and prevent similar transactions.
In its press release, the bank notes there has been no suggestion that the recipients of the Wells notices profited or sought to profit from the alleged market timing and/or excessive trading of this former employee, nor any suggestion that the recipients of the Wells notices themselves engaged in market timing or late day trading or entered into any special arrangements to permit market timing or late day trading in exchange for compensation or business consideration.
Bank of Hawaii has agreed to reimburse the Pacific Capital Funds’ for losses and legal and other costs associated with this matter. BofH has also agreed to advance the legal fees of the individuals who have received notices.