Directive - Aliquot Gold & Precious Metals Equities Fund Inc. (2013-01-25)

Summary

This is an enforcement action 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. The amended directive applies to Aliquot Gold & Precious Metals Equities Fund Inc. together with seventeen other named public funds (all apparently linked to Castlestone Management Incorporated), and imposes ongoing reporting, cost-restriction, fee-structure and prospectus disclosure requirements on those funds.

• Weekly reporting: Each fund must submit weekly reports to the Commission covering portfolio holdings and valuations, cash balances, explanations for portfolio value changes over US$500,000, liabilities, subscriptions, redemptions paid and unpaid, payments and supporting invoices, investor complaints, legal proceedings, and other regulators' investigations or actions.
• Fee and expense freeze: Funds must cease paying fees and expenses except specified categories (management fees, load fees, entry fees, exit penalties, Bloomberg fees, in house legal costs) and certain service fees (fund administration, brokerage, custody, audit, legal) only with the Commission's prior written approval.
• Cost discontinuation: Funds must stop incurring certain administrative and operating costs of their investment manager, adviser or other service providers, including office costs, corporate accommodation, IT fees and other administrative expenses.
• New fee structure: Each fund must develop, by 31 March 2013, a fee and compensation structure consistent with current industry practice, subject to 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, and add enhanced disclosure on fees and expenses, related-party services and contracts involving Castlestone Management Incorporated, conflicts of interest, and any other disclosure required under the Public Funds Code, 2010.

The directive is a targeted enforcement measure against a specific group of named funds rather than a general rule of industry-wide 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 FSC Act.

Key obligations

• Submit weekly reports to the Commission on portfolio assets, cash balances, portfolio value changes over US$500,000, liabilities, subscriptions, redemptions (paid and unpaid), payments/expenses with invoices, investor complaints, legal proceedings and other regulatory actions, commencing 30 June 2011 until directed otherwise.
• Cease and desist from paying all fees and expenses except specified permitted categories, and obtain prior written Commission approval for fund administration, brokerage/custody, audit and legal service fees.
• Discontinue incurring office costs, corporate accommodation, IT fees and other administrative/operating expenses of the investment manager, adviser or other service providers.
• Develop, by 31 March 2013, a Commission-approved fee structure and compensation scheme consistent with current industry practice, and implement it within the period the Commission directs.
• Provide the Commission with copies of directors' and members' resolutions approving the compensation scheme or fee structure.
• Amend the fund's prospectus to remove references to accrual/payment of administrative and operating costs and to add disclosure on fees, related-party services, conflicts of interest, and disclosures required under the Public Funds Code, 2010.

Applies to

public funds, mutual funds, investment business licensees

Deadlines

• commencing 30th June 2011: Start of weekly reporting obligation to the Commission, continuing until directed otherwise.
• no later than 31st March, 2013: Deadline to develop a Commission-approved fee structure and compensation scheme for the investment manager.