SEC Seizes Heartland's Bond Funds' Assets : LUSENET : Grassroots Information Coordination Center (GICC) : One Thread

SEC Seizes Heartland's Bond Funds' Assets By Chris Sanders

NEW YORK (Reuters) - The saga of Heartland Advisors' distressed municipal bond funds came to a head after the U.S. Securities and Exchange Commission, through a court- appointed receiver, seized the assets of the three bond funds, the regulator said Thursday.

Unfortunately for investors, redemptions in the three troubled funds ``have been suspended,'' according to associate regional director of the SEC's Midwest regional office, Tim Warren.

``It goes from bad to worse ... it just goes from one piece of bad news to another,'' said one investor in Pennsylvania with close to 7,000 shares of the firm's high-yield fund.

Milwaukee-based Heartland Advisors on Oct. 13, 2000, unexpectedly cut the net asset value of its High-Yield Municipal Bond Fund (Nasdaq:HRHYX - news) by 70 percent and its High-Yield Short Duration Municipal Fund (Nasdaq:HRSDX - news) by 44 percent. The move infuriated investors and spawned 19 separate lawsuits alleging fraud and mismanagement.

A very small third fund, the Heartland Taxable Short Duration Municipal Fund, (Nasdaq:HRTMX - news) which had also suffered a drop in asset value, was included in the SEC seizure, the firm said in a statement released late Wednesday.

In a litigation release, the SEC said its complaint alleges Heartland failed to send an annual report on the three funds and ``failed to file the report with the Commission in the time allotted under federal securities law.''

The commission's investigation in the matter continues, the release stated, but director Warren could not comment further.

The basis for the order was the bond funds' inability to price their holdings accurately and thus provide shareholders with audited financial statements on a timely basis, the statement said.

At the end of February, the three funds held combined assets of $37 million, according to Lipper Inc.

``The action of the SEC is not surprising,'' said Karl Cambronne, an attorney with Chestnut & Cambronne in Minneapolis, who has filed suit on behalf of several shareholders.

``The cases will go forward because we are not suing the funds, but the people responsible for the conduct of the funds,'' Cambronne added.

Named in the lawsuits are Heartland Group Inc.; Heartland Advisors Inc.; the funds' directors, including President William Nasgovitz; Thomas Conlin, the portfolio manager who resigned several weeks before the re-pricings took place; and Greg Winston, the portfolio co-manager. The complaints also name PricewaterhouseCoopers, the auditor of the funds' financial statements.

The U.S. District Court in Northern Illinois, Eastern Division, and the SEC agreed to appoint attorney Philip L. Stern to take over the assets and begin liquidating them, if he deems that action appropriate.

Heartland Group Inc., the registered investment company that oversaw the funds, voluntary agreed to the asset freeze, which was approved by their boards of directors.

The boards for the funds will be retired, Heartland spokesman Aaron Picard.

The move taken does not affect any of Heartland Advisors'

other equity funds or its sole remaining Wisconsin Tax-Free bond fund.

Heartland said it intends to cooperate fully with the receiver.

Personal Note: Is this an anomaly or the start of a trend?

-- Guy Daley (, March 22, 2001

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