The former chief investment officer for Mitchell Hutchins Asset Management of New York has agreed to pay $10,000 to settle SEC charges that she failed adequately to supervise a portfolio manager's investment and securities pricing practices.
Ellen Griggs gave portfolio manager Stephen H. Brown almost total control over key parts of Brown's job with little or no effective oversight from September, 1993 to April, 1994, the SEC alleged in an order filed Sept. 27. Griggs did not adequately oversee Brown, whom the SEC alleged purchased inappropriate derivatives for his fund, then known as the Paine Webber Short-Term U.S. Government Income Fund.
The fund said in SEC filings that it would have low volatility in its net asset value and that it did not plan to invest in interest-only and principal-only strips of collateralized mortgage obligations. Brown invested in interest-onlys and principal-onlys, which the SEC said were more volatile than the fund's stated objective permitted.
Although Griggs took steps to make sure that the fund had low volatility of its net asset value and instructed Brown not to invest in interest-onlys and principal-onlys, Griggs' efforts were not sufficient to detect Brown's conduct, the SEC alleged. CIOs have a duty to insure that a fund's investments are consistent with the fund's investment restrictions, said Mark W. Porter, a lawyer for the SEC.
Griggs neither admitted nor denied the allegations in the SEC's order. Her lawyer, David Smith of the law firm of Schnader Harrison Segal & Lewis LLP of Philadelphia, declined to comment. Griggs, of Milwaukee, Wis., also agreed to be suspended from associating with an investment adviser for one month and from acting as a supervisor for five months in addition to making the $10,000 payment.
The settlement of the Griggs case is the last chapter in what had been a long-running saga for the fund and those associated with it. The SEC settled with Brown over a number of charges in September, 1998. (MFMN 9/21/98) Brown agreed to be barred from working with an investment adviser for three years. Mitchell Hutchins agreed to pay $500,000 to settle the SEC's claims in the same incident in 1997. (MFMN 9/8/97) Brown and Mitchell Hutchins neither admitted nor denied the SEC's allegations in settling the cases.
In addition to allegedly making inappropriate purchases for the fund, Brown inaccurately inflated values assigned to securities in the fund to raise the securities' value, the SEC alleged. Brown's pricing practices obscured his purchase of the prohibited derivatives, according to the SEC. Griggs' oversight of the pricing of the fund's securities was inadequate to detect Brown's conduct, the SEC alleged.
The SEC periodically brings failure to supervise cases against CIOs, SEC lawyers said.