Directive - Aliquot Gold Bullion Inc. (2013-01-25)

Summary

This is an enforcement Directive issued by the BVI Financial Services Commission under section 40(1)(b) of the Financial Services Commission Act, 2001, amending an earlier Directive dated 15 August 2011. It applies to Aliquot Gold Bullion Inc. and a named group of related public funds (including Aliquot Agriculture Fund Inc., Aliquot Commodity Fund Inc., Aliquot Precious Metals Inc., and others listed in the notice), all licensed as Public Funds.

• Weekly reporting: Each Fund must submit weekly reports to the Commission covering portfolio assets and valuations, cash balances, explanations for portfolio value changes exceeding US$500,000, liabilities, subscription and redemption schedules, unpaid redemption requests, payments and supporting invoices, investor complaints, legal proceedings, and regulatory actions by other regulators, until the Commission directs otherwise.
• Fee and expense freeze: Funds must cease paying fees and expenses except specified categories (management, load, entry, exit, Bloomberg fees, in-house legal costs) and certain service fees (administration, brokerage, custody, audit, legal), and must obtain prior written Commission approval for those exceptions.
• Cost discontinuation: Funds must stop incurring day-to-day administrative and operating costs of their investment manager, adviser or other service providers, including office costs, corporate accommodation, IT costs, and other administrative fees.
• Fee structure approval: Each Fund must develop a new fee structure and manager compensation scheme consistent with industry practice, obtain Commission approval, and implement it within the period the Commission directs.
• Governance evidence: Funds must provide the Commission with copies of directors' and members' resolutions approving the new compensation scheme or fee structure.
• Prospectus amendments: Funds must amend their prospectuses to remove references to accrual and payment of administrative and operating costs of managers, advisers and other functionaries, and to add enhanced disclosure on fees and expenses, related-party services and contracts, conflicts of interest, and any other disclosure required under the Public Funds Code, 2010.

The Directive is an enforcement action specific to the named funds rather than a general rule of broader application, but it illustrates the type of ongoing reporting, cost-control and disclosure conditions the Commission can impose on public funds under section 40 of the Financial Services Commission Act, 2001.

Key obligations

• Submit weekly reports to the Commission on portfolio assets, cash balances, liability details, subscription and redemption schedules, unpaid redemptions, payments/invoices, investor complaints, legal proceedings and other regulators' actions, until the Commission directs otherwise
• Cease and desist from paying fees and expenses other than specified categories, and obtain prior written Commission approval for payment of administration, brokerage, custody, audit and legal service fees
• Discontinue incurring specified administrative and operating costs (office costs, corporate accommodation, IT costs, other administrative fees) of the investment manager, adviser or other service providers
• Develop, by 31 March 2013, a Commission-approved fee structure and compensation scheme for the investment manager, and implement it within the period the Commission directs
• Provide the Commission with copies of directors' and members' resolutions approving the new compensation scheme or fee structure
• Amend the Fund's prospectus to remove references to accrual/payment of administrative and operating costs and to add enhanced disclosure on fees, related-party services, conflicts of interest and Public Funds Code requirements

Applies to

Public Funds, Aliquot Gold Bullion Inc., Aliquot Agriculture Fund Inc., Aliquot Commodity Fund Inc., Aliquot Precious Metals Inc., Aliquot Gold & Precious Metals Equities Fund Inc., Global Property Growth & Income REITS Fund Inc., Inflation Target Recovery Fund Inc., Intelligent Portfolio (IQ-Asset Allocation) Inc., Next 11 Emerging Fund Inc., Porcupine Absolute Return Fund Inc., Balanced Opportunity Inc., Systematic Growth Fund Inc., Collection of Modern Art Inc., World Index Growth and Income Fund Inc., Concerto Alternative Alpha Inc., Consistent Return (Cash Management) Fund Inc., Emerging Markets Growth And Income Fund Inc., Porcupine Global Macro Plus Inc.

Deadlines

• commencing on 30th June 2011: Weekly submission to the Commission of Fund portfolio, cash, liability, subscription, redemption, payment, complaint and litigation information, continuing until the Commission directs otherwise
• no later than 31st March 2013: Deadline to develop a Commission-approved fee structure and investment manager compensation scheme