The SEC has fined three independent fund directors for their alleged conduct in supervising a money market fund whose net asset value (NAV) dropped below $1.00 per share in 1994.

The SEC said in a complaint filed Jan. 11 that the three independent directors and one affiliated director of the Community Bankers Mutual Fund of Boston knew that the fund's US Government Money Market portfolio had roughly 27 percent of its assets in derivatives which were losing value in the spring of 1994. Nevertheless, the SEC said the directors improperly allowed the fund's NAV to remain at $1.00 per share through September, when the fund went out of business. Shareholders ultimately lost approximately $2.5 million, according to the SEC complaint.

The three independent directors -- John Hankins of Huntington, West Virginia, Howard Peterson of Grand Island, Neb. and John Guffey of Chevy Chase, Md. -- were fined $5,000 each. In addition, the SEC fined director John Backlund of Denver, president of fund adviser Community Assets Management, $10,000. In a separate case, the SEC fined the fund's portfolio managers, Craig Vanucci of New Berlin, Wisc. and Brian Andrew of Racine, Wisc., $30,000 each.

All of those named in the SEC actions neither admitted nor denied the allegations. The cases mark at least the third instance of the SEC filing an enforcement action against fund directors since May, 1997.

A mutual fund directorship "is not a sinecure," said Daniel F. Shea, regional director of the SEC's Denver office. "If directors don't carefully scrutinize what's going on, we're going to go after them."

In the Community Bankers case, the fund's directors knew by March or April of 1994 that the value of the fund's derivatives were beginning to erode. By June, the true value of the fund's NAV had dropped below $1.00, the SEC alleged. Nevertheless, the board allowed the fund to continue to report a $1.00 share price, the SEC said.

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