The White Law Group is investigating potential securities fraud claims involving Z Seven Fund, a mutual fund offered by Top Fund Management.
An SEC investigation recently found that the prospectus of Z Seven Fund (ZSF) stated that it sought long-term capital appreciation and restricted the use of options. Nonetheless, beginning in September 2009, Barry C. Ziskin and his firm Top Fund Management (TFM) invested ZSF in put options for speculative purposes contrary to the fund’s stated investment policy. The losses from options trading and the ensuing investor redemptions ultimately resulted in ZSF’s liquidation in December 2010.
According to the SEC’s order instituting settled administrative proceedings against TFM and Ziskin, disclosures in ZSF’s prospectuses and statements of additional information provided that the fund could trade options only to hedge its portfolio. However, because TFM and Ziskin traded put options in such large amounts relative to the size of ZSF’s equity portfolio, their strategy amounted to speculation. For example, ZSF’s equity portfolio had a market value of $1,835,607 on July 6, 2010, but ZSF held enough option contracts to protect a portfolio worth $32,858,000 (17.9 times the value of the equity portfolio). ZSF’s options trading also caused the fund’s performance to plummet. As of October 2009, ZSF had net assets of $5.3 million, but over the next 15 months the fund suffered $3.7 million in losses from options. TFM and Ziskin misled ZSF investors by misrepresenting in a shareholder report that options trading was for hedging purposes.
The SEC’s order finds that TFM and Ziskin willfully violated the antifraud provisions of the Securities Act of 1933, the Securities Exchange Act of 1934, and the Investment Advisers Act of 1940. The order also finds that TFM and Ziskin violated Section 34(b) of the Investment Company Act of 1940 and caused ZSF to violate Section 13(a)(3) of that act. Without admitting or denying the SEC’s findings, TFM and Ziskin agreed to cease and desist from committing or causing any violations and any future violations of these provisions. They also consented to the entry of an SEC order that censures TFM and bars Ziskin from association with any broker, dealer, investment adviser, municipal securities dealer, municipal advisor, transfer agent, or nationally recognized statistical rating organization and prohibits him from serving as an officer, director or employee of a mutual fund.
Investors in Z Seven Fund may be able to recover their losses in FINRA arbitration claims against the brokerage firms that recommended the investment to them.
Brokerage firms have a fiduciary duty to perform adequate due diligence on any investment before offering it for sale to their clients. Given what is now known about Z Seven Fund, it appears that the firms that sold this mutual fund may have failed to perform adequate due diligence.
If you suffered losses in Z Seven Fund and would like to discuss your litigation options, please call the securities attorneys of The White Law Group at 312/238-9650 for a free consultation.
The White Law Group is a national securities fraud, securities arbitration, and investor protection law firm with offices in Chicago, Illinois and Boca Raton, Florida. For more information on The White Law Group visit http://www.whitesecuritieslaw.com.