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UNITED STATES OF AMERICA
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IN THE MATTER OF GERSON ASSET MANAGEMENT, INC.,
RESPONDENTS. |
: : : : : : : : : : |
Notice is hereby given, pursuant to Rule 1103 of the Rules on Fair Fund and Disgorgement Plans of the United States Securities and Exchange Commission, 17 C.F.R. ยง 201.1103, that the Division of Enforcement has filed with the Commission its proposed Modified Plan for the Administration and Distribution of the Disgorgement Fund (the "Modified Distribution Plan") in the above-captioned matter.
Pursuant to this Notice, all interested parties are advised that they may print a copy of the proposed Modified Distribution Plan from the Commission’s public website. Interested parties may also obtain a written copy of the proposed Modified Plan by submitting a written request to Luke M. Fitzgerald, United States Securities and Exchange Commission, Three World Financial Center, Room 4300, New York, New York 10281. Further, interested parties desiring to comment on the Modified Plan must submit their comments, in writing, no later than November 14, 2007:
Please include Administrative Proceeding File Number 3-12121 on the subject line of any comment submitted electronically.
In an Order entered by the Commission on December 2, 2005, the Commission found that Gerson Asset Management, Inc., a registered investment adviser, and Seth Gerson, GAM’s sole owner, officer, and employee, defrauded certain GAM clients by unfairly allocating trades to Gerson and accounts maintained in the name of his wife and son, at the expense of those advisory clients. Gerson Asset Management, Inc., et al., Exchange Act Release No. 52880 (Dec. 2, 2005). More specifically, the Commission found that, from the time GAM commenced operations in May 2000 through February 2004, Gerson unfairly allocated profitable trades to his own accounts (and accounts of his wife and son), and allocated unprofitable trades to the accounts of his advisory clients, by purchasing securities in an omnibus account and delaying allocation of the purchases until later in the day, after he saw whether the securities appreciated in value. With respect to some clients, the Commission found that Gerson sold securities that had appreciated and allocated the purchase and the realized day-trading profit to his own account. These clients were referred to in the Order as the "short-term trading clients." With respect to a second group of clients – referred to as the "Horowitz-referred clients" – the Commission found that Gerson sold securities that had appreciated, allocated the purchase and intra-day profit to his own account, and purchased the same security at the increased price for the client’s account. Among other things, the Commission ordered Gerson to pay disgorgement in the amount of $160,237.
The Division of Enforcement previously filed a slightly different version of a proposed distribution plan , which was noticed for comment on May 5, 2006.1 The principal difference between the previous version of the plan and the Modified Plan is that the Modified Plan makes clear that it is only those GAM clients who were harmed by GAM’s and Seth Gerson’s violative conduct who have not already been compensated by Gerson for their losses who will be entitled to a distribution. Unlike the original proposed plan, the Modified Plan distinguishes between the GAM clients who were harmed by GAM’s and Seth Gerson’s unfair allocation of profitable trades, who are referred to as "Potential Claimants," and those Potential Claimants who suffered a "Net Loss" as a result of the violative conduct, which takes into account any amount received from Gerson to compensate for that loss, who are designated "Eligible Claimants." Only Eligible Claimants will be entitled to a distribution under the Modified Plan. On the basis of information obtained during the investigation leading to the proceeding, the Commission’s staff has identified Potential Claimants, calculated their Net Loss, and identified the Eligible Claimants. The Potential Claimants are identified on Appendix A to the Modified Plan and the Eligible Claimants are identified on Appendix B to the Modified Plan, which also lists their proportionate share of total net losses, on which their distribution will be based.
Under the terms of the Modified Plan, a Potential Claimant’s "Net Loss" is defined as the client’s "Loss from the Violative Conduct," which is defined differently for the Horowitz-referred clients and the short-term trading clients, minus any amount the Potential Claimant received from GAM or Gerson to compensate for the Loss from the Violative Conduct. An Eligible Claimant’s distribution shall consist of such claimant’s Net Loss (or share of available funds proportionate to such Eligible Claimant’s share of all Eligible Claimants’ Net losses), plus a smaller additional component, if there are sufficient funds available after payment of certain costs and expenses. As under the plan originally proposed, under the Modified Plan, a Commission employee is proposed to act as fund administrator, and will not receive any compensation other than her regular salary.
The other modifications to the plan originally proposed are technical and include the change in the designated rate for the calculation of an addition distribution component and the renaming of that component and changes designed to make the Plan clearer.
By the Commission.
Nancy M. Morris
Secretary
1 The previous notice was posted on the Commission’s website at: http://www.sec.gov/litigation/admin/2006/34-53760.htm and a copy of the original version of the plan was posted on the Commission’s website on May 5, 2006, at: http://www.sec.gov/litigation/admin/2006/34-53760-pdp.pdf. Copies of the notice and original plan were also mailed to all Potential Claimants. No comments were received in response to the notice.
See also Proposed Modified Distribution Plan
http://www.sec.gov/litigation/admin/2007/34-56659.htm
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