Securities and Exchange Commission v. : : Columbia Management :

 
 
UNITED STATES OF AMERICA 
Before the 
SECURITIES AND EXCHANGE COMMISSION 
 
 
SECURITIES EXCHANGE ACT OF 1934   
Release No.  55598 / April 6, 2007 
 
Administrative Proceeding  
File No. 3-11814 
____________________________________ 
                                                               :  
In the Matter of               :   
                                                             :   
COLUMBIA MANAGEMENT  :  Order Approving a 
ADVISORS, INC. AND COLUMBIA :  Distribution Plan 
FUNDS DISTRIBUTOR, INC.  : 
      : 
                        Respondents.                                    :            
____________________________________: 
 
 
I.  
 
 On February 9, 2005, in the above-captioned matter, the Commission issued an Order 
instituting and simultaneously settling public administrative and cease-and-desist proceedings 
against Columbia Management Advisors, Inc. and Columbia Funds Distributor, Inc. (the 
“Columbia Order”).  In the Columbia Order, the Commission authorized and established a Fair 
Fund of $140 million in disgorgement and penalties paid by Columbia Management Advisors, Inc. 
and Columbia Funds Distributor, Inc. (collectively, “Columbia”).  According to the Columbia 
Order, the Fair Fund is to be distributed to investors injured by market timing in the Columbia 
mutual fund complex (“Columbia Funds”) pursuant to a distribution plan to be developed by an 
Independent Distribution Consultant (the “IDC”).  In February 2005, Columbia engaged 
Lawrence Hamermesh, a Professor of Corporate and Business Law at Widener University 
School of Law in Wilmington, Delaware, as the IDC. 

 
 2 
 
On June 5, 2006, the Commission’s Division of Enforcement submitted a proposed 
distribution plan to the Commission’s Office of the Secretary (the “Plan”).  The Plan provides for 
distribution to all eligible investors of their proportionate share of the disgorgement and civil 
penalties paid by Columbia to compensate such investors for injury they suffered as a result of 
market timing in Columbia Funds for the period spanning at least 1998 through October 2003.  
The aggregated Fair Fund includes $140 million plus any accumulated interest (the “Columbia 
Fair Fund”).  The IDC will calculate eligible investors’ proportionate shares of the Columbia 
Fair Fund based on information contained in Columbia’s records, as well as records obtained 
from third-party intermediaries, obviating any need for a claims process.   
 
 In accordance with the Commission’s Rules on Fair Fund and Disgorgement Plans (the 
“Fair Fund Rules”), 17 C.F.R. § 201.1100, et seq., the Plan proposes a Fund Administrator and 
sets forth, among other things, procedures for the receipt of additional funds; categories of 
persons potentially eligible to receive proceeds from the Columbia Fair Fund; procedures for 
providing notice to such persons of the existence of the fund and their potential eligibility to 
receive proceeds; procedures for the administration of the fund, including provisions for filing 
tax returns; and a proposed date for the termination of the Columbia Fair Fund.   
 
Rust Consulting, Inc., proposed in the Plan as the Fund Administrator, has not posted the 
bond generally required of third-parties under Fair Fund Rule 1105(c).
1
  Rather, the Plan 
incorporates several layers of protection for the Columbia Fair Fund.  Among other things, under 
the Plan:  (1) the Fund Administrator will have no custody, and only restricted control, of the 
Columbia Fair Fund; (2) assets of the Columbia Fair Fund will be held by the United States 
Department of the Treasury, Bureau of Public Debt (“Treasury”) until no more than two business 
day before checks or wires are transmitted to eligible investors; (3) upon transfer from Treasury, 
funds will be held in an escrow account until needed to satisfy a presented check or wire; (4) 
upon presentment of checks or wire instructions, funds will be subject to a “positive pay file” 
system before being honored by the escrow bank; (5) both the escrow bank and the Fund 
Administrator will maintain throughout this process insurance and/or a financial institution bond 
that covers errors and omissions, misfeasance and fraud; and (6) because the disbursements to 
investors will be made in tranches, at no time will the funds held at the bank ever approach the 
amount covered by the insurance. 
 
On July 19, 2006, the Commission published the Plan and issued a Notice of Proposed 
Distribution Plan and Opportunity for Comment (Exchange Act Release No. 54175) pursuant to 
Rule 1103 of the Fair Fund Rules, 17 C.F.R. § 201.1103.  The Notice advised interested parties 
that they could obtain a copy of the Plan at 
http://www.sec.gov/litigation/admin/2006/34-54175-
pdp.pdf, or by submitting a written request to Celia D. Moore, United States Securities and 
Exchange Commission, 33 Arch Street, 23
rd
 Floor, Boston, MA 02110.  The Notice also advised 
that all persons desiring to comment on the Plan could submit their comments, in writing, no 
later than August 18, 2006. 
 
                     
1
  Based on estimates provided to the staff of the Commission, the cost of a bond could be in the 
millions of dollars.  

 
 3 
In response to the Notice, the Spark Institute, Inc. (“Spark”), the Coalition of Mutual 
Fund Investors (“CMFI”), the American Bankers Association (“ABA”), and Merrill Lynch & 
Co., Inc. (“Merrill Lynch”) submitted public comments to the Office of the Secretary.  The 
Commission staff engaged in subsequent communications with the IDC to discuss the issues that 
each commenter raised in its respective letter.  In general, the Spark Letter seeks relief on behalf 
of intermediaries for non-IRA Retirement Accounts
2
 eligible for a distribution under the Plan 
from fiduciary obligations and costs that may arise from distributions.
3
  The CMFI Letter, 
written on behalf of individual mutual fund investors, expresses concern about the procedures by 
which the IDC will seek investor information and distribute Fair Fund money in connection with 
omnibus accounts.  The ABA Letter, written on behalf of banks and trust companies, raises 
questions about procedures by which omnibus account holders will recoup expenses and 
expresses concern about the accuracy of distribution amounts.  Merrill Lynch’s letter seeks 
additional protections for financial intermediaries in terms of repayment of costs, limitation of 
liability, and transmission of account holder data. 
 
After careful consideration, the Commission has concluded that the Plan should be 
modified to include, among other things, additional detail concerning procedures applicable to 
non-IRA Retirement Accounts, and that the Plan should be approved with such modifications.  
The Commission has further determined that, for good cause shown, the bond required under 
Fair Fund Rule 1105(c) will be waived. 
 
II.  
 
A. Public Comments on the Plan 
 
1. The Spark Letter 
 
The Spark letter, dated August 18, 2006, is written on behalf of “retirement plan service 
providers that will be responsible for reconstructing accountholder balance information, making 
certain allocations, receiving distributions, and making distributions to plan participants who are 
the intended beneficiaries of a substantial portion of the distribution at issue.”  In its letter, Spark 
asserts that, under the Plan and pursuant to Department of Labor (“DOL”) April 19, 2006 Field 
Assistance Bulletin (2006-01) (the “FAB”), a retirement plan record keeper that is not otherwise 
                     
2
  “Retirement Account” as used in the Plan and herein, means any account of an employee benefit 
plan, as such plans are defined in section 3(3) of the Employee Retirement Income Security Act of 1974, 
29 U.S.C. 1001, et seq. (“ERISA”), which is not an Individual Retirement Account, whether or not the 
plan is subject to Title I of ERISA.   
 
3
  The Spark Letter included one additional comment regarding the 180-day deadline for 
distributions with respect to omnibus accounts described in ¶ 7.6(h) of the Plan.  Spark had concerns that 
Retirement Account service providers would not have adequate time to identify the affected plans and 
obtain the required distribution instructions.  The 180-day deadline applies only to the distributions with 
respect to omnibus accounts.  There is no comparable deadline in ¶ 7.7 for Retirement Accounts.  
Moreover, even if the 180-day deadline in Plan ¶ 7.6(h) did apply to Retirement Accounts, ¶ 7.6(h) 
explicitly states that the deadline can be extended for good cause. 
 

 
 4 
                    
a retirement plan fiduciary must choose between assuming fiduciary obligations under ERISA 
and replicating the IDC’s calculations.
4
  Spark further asserts that the effort and cost associated 
with gathering daily accountholder information for a 5 year period substantially limits the ability 
of a record keeper or other intermediary to use the IDC’s methodology and thus, fall within the 
Safe Harbor.  Finally, Spark requests that the Fund Administrator provide an estimate of the 
potential cost reimbursement of expenses to retirement plan service providers so that the plan 
record keeper and the Fund Administrator can determine the most cost effective way to handle 
the distribution.  The Commission addresses these issues below. 
 
As is evident from the FAB, fiduciary obligations accompanying a distribution under a 
distribution plan are not new developments under the law.  Rather, these obligations arise under 
pre-existing ERISA legislation and common law.
5
  In sum, assuming fiduciary duties under 
ERISA is not a new possibility for record keepers or other ERISA plan intermediaries in 
connection with a distribution of litigation proceeds.  Accordingly, requiring intermediaries to 
distribute funds in accordance with fiduciary duties is neither inappropriate nor unreasonable.   
 
Nevertheless, certain modifications to the Plan are appropriate in order to (1) assist Spark 
members and others similarly situated in understanding the Plan and complying with their 
responsibilities under the law; and (2) provide some less costly distribution alternatives in 
connection with non-IRA Retirement Accounts and thereby increase the likelihood that 
distributions will be made through the plan participant level: 
 
• To improve the clarity of the section concerning non-IRA Retirement Accounts, 
“Retirement Accounts” has been defined (Plan, ¶ 7.7(a)); 
 
• Alternative distribution methodologies have been added to the Plan to provide 
non-IRA Retirement Account intermediaries additional means to distribute funds 
in accordance with their fiduciary, contractual, and/or legal obligations.  (Plan,  
¶ 7.7(a)). 
 
The foregoing modifications to the Plan address some concerns of Spark members and 
others similarly situated by enabling them to perform a precise cost benefit analysis, and to 
 
4
  The FAB, in essence, provides a regulatory safe harbor to intermediaries using an IDC’s 
methodology (the “Safe Harbor”), providing:  “[i]f an IDC, as part of its distribution plan approved by the 
SEC, makes available to an intermediary or requires, as a condition to the distribution, that the 
intermediary utilize a particular methodology for allocating settlement fund proceeds among individual 
omnibus account clients, the [DOL] will, as an enforcement matter, view the application of such 
methodology to the allocation of settlement fund proceeds among individual omnibus account clients as 
satisfying the requirements of section 404(a) with respect to the methodology for allocating assets to 
employee benefit plans,” as long as such methodology is implemented prudently.  FAB at p. 3.   
 
5
  See, e.g., FAB at p. 2 (citing ERISA and “ordinary notions of property rights”).  

 
 5 
develop and seek approval of a distribution methodology in advance of performing any 
distribution, thereby possibly avoiding the assumption of fiduciary responsibility.
6
    
 
With regard to Spark’s request for an estimate of cost reimbursement, the retirement plan 
service provider, not the Fund Administrator, is in the best position to estimate reimbursement 
costs.  Moreover, in view of the comparatively low cost alternatives that will now be included in 
the Plan specifically for non-IRA Retirement Accounts, retirement plan record keepers should 
determine the most cost effective way to handle the distribution. 
 
2. The CMFI Letter 
 
The CMFI comments are in furtherance of “the interests of individual mutual fund 
investors.”  In its Comment Letter dated August 17, 2006, CMFI expressed three concerns 
related to omnibus accounts:  the Plan overly relies on the cooperation of financial intermediaries 
to obtain identity and transaction information; true level of investment activity can only be 
identified at the sub-account level; and certain scenarios may result in investors not receiving any 
distribution.  The Commission addresses these points below.   
  
CMFI suggests that the Plan should require the Columbia Funds to request from 
intermediaries, pursuant to Rule 22c-2 of the Investment Company Act (17 C.F.R. § 270.22c-2) 
(“Rule 22c-2”), the information currently sought through cooperation.  Rule 22c-2(a)(2) provides 
that a fund or its principal underwriter or transfer agent must enter into a written agreement with 
each financial intermediary of the fund under which the intermediary must agree to “provide 
promptly, upon request by a fund, the Taxpayer Identification Number of all shareholders who 
have purchased, redeemed, transferred, or exchanged...,” along with the amount and dates of 
such transactions.
7
  Under Rule 22c-2, funds must enter into shareholder information agreements 
with their intermediaries by April 16, 2007, and must be able to request and promptly receive 
shareholder identity and transaction information pursuant to shareholder information agreements 
by October 16, 2007.  See 71 Fed. Reg. at p. 58262, § III.  As a result, Rule 22c-2 cannot be used 
at this time as a means to request investor information from intermediaries. 
 
CMFI also states that it is difficult to know which trades in omnibus accounts are market 
timing transactions because the trading data is aggregated, therefore a better estimate of market 
timing gains would result if the IDC evaluates all account data at the sub-account (i.e., the 
individual investor) level.  However, the Columbia Plan’s approach is reasonable under the 
circumstances, and CMFI’s proposal does not offer a demonstrably superior alternative.  The 
IDC estimates that evaluating account data at the investor level would take at least an additional 
year and would cost as much as several million dollars, not including the costs (that are difficult 
                    
 
6
  See FAB at p. 4 and note 8 (“If the receipt, allocation and/or distribution services of the 
intermediary, and compensation for such services, are carried out in accordance with the directions and 
approval of appropriate plan fiduciaries, the intermediary may be able to avoid fiduciary status and issues 
relating to self-dealing under ERISA.”).   
 
7
  See Rule 22c-2(c)(5) (defining “shareholder information agreement”). 
 

 
 6 
                    
to estimate) that would be incurred by the omnibus account holders in generating and providing 
the additional information.  Moreover, there would be no net benefit to investors overall in 
attempting to assess account data at the investor level, because the amount to be distributed is 
fixed. 
 
CMFI also describes several scenarios in which an individual investor in an omnibus 
account may not receive any distribution.  The first scenario is where an intermediary refuses to 
accept a distribution on behalf of its omnibus investors if it estimates that the cost of identifying 
beneficial owners and distributing funds exceeds the distribution amount.  CMFI comments that 
this scenario penalizes investors who are customers of intermediaries with less than efficient 
recordkeeping systems.  While some investors may be at a disadvantage as a result of having 
selected intermediaries with less efficient systems, the extent of any actual disadvantage is 
uncertain, unquantified, and speculative. 
 
The second scenario occurs where distributions are less than $10.  CMFI suggests that the 
Plan use the methodology proposed by the IDC in the Banc One proceeding to address de 
minimis distributions.
8
  In the Banc One proceeding, all distributions of less than $10 each will 
be aggregated and then redistributed in sequence to the accounts with the largest provisional 
distributions less than $10, sequentially assigning a distribution of $10 to each account until the 
aggregate is depleted.  However, the Banc One methodology and the Columbia Plan 
methodology are similar in substance.
9
  Further, the Columbia Plan’s proposed methodology is 
commercially reasonable and this conclusion is not affected by the existence of alternative 
reasonable methodologies. 
 
Last, CMFI is concerned with the $1000 distribution threshold for omnibus accounts.  
CMFI believes that investors in a small omnibus account may be left without a distribution 
because of a potential distribution of less than $1000.  CMFI suggests there should be an 
exception to the $1000 rule for omnibus accounts and/or intermediaries with a small number of 
investors.  The proposed $1000 threshold for omnibus accounts is one of a number of possible 
reasonable alternatives.  To the extent that an omnibus account holder is aware that it would be 
able to distribute in an economical manner an amount less than $1000, the Columbia Plan allows 
the holder to use “any distribution technique . . . in the exercise of its reasonable discretion, 
deem[ed] . . . consistent with its fiduciary, contractual, or other legal obligations.” 
 
8
  See Proposed Plan of Distribution in In the Matter of Banc One Investment Advisors Corporation 
and Mark A. Beeson, Admin Proc. File No. 3-11530 (August 7, 2006), at Step Twelve.
 
 
9
  The Columbia Plan, ¶7.5, uses a two step process to minimize distributions of less than $10.  
First, if an individual shareholder has less than $10 in more than one affected fund, all of those instances 
will be aggregated into a single account such that the single account distribution is greater than $10.  
Next, all those individual shareholders whose total aggregate distribution is still less than $10 will be 
combined, with the resulting sum distributed in $10 units in descending order of dilution harm.  The Banc 
One Plan does not take the first step of aggregating small amounts attributable to individual shareholders.  
Rather, the Banc Once Plan ranks all provisional distributions of less than $10 in descending order and 
recomputes each individual distribution as a $10 unit, in descending order from largest to smallest, until 
the total amount is depleted. 
 

 
 7 
 
3. The ABA Letter 
 
ABA members include banks, savings associations and trust companies.  Its comment 
letter, dated August 18, 2006, questions the procedures by which omnibus account  
holders will recoup costs and receive distribution amounts.
10
 
ABA expressed concern that the Plan may not accurately identify the true level of 
investment activity in omnibus accounts because the Plan only reflects net investment activity 
rather than underlying owner activity.  Like CMFI, ABA suggests that the IDC should consider 
full account activity at the individual beneficial owner level.  However, as discussed above, the 
Columbia Plan’s methodology is commercially reasonable and the ABA’s proposal does not 
offer a demonstrably superior alternative. 
 
Next, while acknowledging that the Plan appropriately provides that omnibus account 
holders may recoup costs of reasonable best efforts to identify and distribute funds, ABA 
suggests that the Plan should define “commercially reasonable best efforts” to include additional 
staffing costs, as well as other costs necessary either to obtain data or to delegate to other service 
providers the responsibility for providing owner information.  The Plan need not define 
“commercially reasonable best efforts” in such detail.  If a provider requires additional staffing 
to perform its duties, and that necessity is reasonable, then such out-of-pocket costs will be 
reimbursed. 
 
 
4. The Merrill Lynch Letter
 
                     
10
  The ABA letter includes three additional comments.  First, ABA discussed concerns with ¶ 7.6(a) 
of the Plan, which governs distributions to omnibus accounts but specifically exempts from its coverage 
ordinary trusts, pension plans and 529 plans.  ABA questions which method of distribution will be used 
for trusts that invest in mutual funds through omnibus accounts.  The Plan states that trusts, pension plans, 
and 529 plans are not considered omnibus accounts for purposes of the distribution rules under ¶ 7.6.  If a 
trust is an investor in an omnibus account, however, that trust is treated like any other investor in the 
omnibus account.  ABA also expressed concern that the 180 day distribution deadline for omnibus 
accounts in ¶ 7.6(h) will be insufficient if (i) omnibus holders are unable to obtain the necessary 
beneficial owner information from other service providers; (ii) other Fair Fund monies are distributed 
simultaneously; or (iii) mutual funds begin to request information from banks and other intermediaries as 
permitted under new Rule 22c-2.  However, ¶ 7.6(h) expressly states that the 180 day distribution 
deadline can be extended for good cause.  Last, ABA asks for further guidance on whether a de minimus 
amount can be used to offset costs, returned to the account, or spread to the other beneficial owners if a 
participant cannot be located.  The Plan, ¶¶ 6.2 and 7.9, states that if persons to whom a distribution 
would otherwise be made cannot be located, the unclaimed amounts are to be added back to the Columbia 
Funds.  In addition, ABA requests further guidance on appropriate algorithm calculations for 
intermediaries that opt to perform all calculations necessary to make distributions to investors.  The Plan ¶ 
7.6(c)(iii) states that if an intermediary elects this option, it will be provided the appropriate 
specifications. 
 

 
 8 
                    
Merrill Lynch’s comment letter, dated January 8, 2007, seeks additional protections for 
financial intermediaries in the form of repayment of out of pocket costs, extending the limitation 
of liability to include the firms involved in the distribution of funds, and including protections 
related to the transmission of beneficial owner data.
11
 
Merrill Lynch would like the Plan to make clear that financial intermediaries and 
servicing organizations that expend time and resources ensuring that clients receive funds are 
reimbursed for the costs of distributing assets and not just the costs of gathering and supplying 
data.  To the extent that Merrill Lynch’s comment relates to omnibus account and network level 
account holders, the Plan as currently written prescribes the contemplated reimbursement.
12
  The 
IDC did not intend for the Plan to reimburse costs incurred by plan administrators of Retirement 
Accounts, however.  As discussed above with respect to the Spark letter, in light of the 
comparatively low cost alternatives that will now be included in the Plan specifically for non-
IRA Retirement Accounts, retirement plan record keepers are best positioned to determine the 
most cost effective way to handle the distribution. 
 
Merrill Lynch suggests that the Plan contain a clause limiting the liability of financial 
intermediaries in facilitating the distributions.  Prior to Merrill Lynch’s comment, the IDC 
amended the Plan to include a clause which provides, in relevant part, that the Fund 
Administrator, the IDC, and their designees, agents, and assigns, cannot be held liable to any 
person except upon a finding of gross negligence or more.
13
  This clause expressly excepts the 
Commission and/or the Columbia Fair Fund from persons subject to the liability limitations.  
This clause is merely an expression of the current state of the law, however, and neither the 
Commission nor the IDC has authority to expand or contract the liability of financial 
intermediaries.  If a financial intermediary is subject to any liability, that is because of the 
intermediary’s relationship with its client.   
 
Finally, Merrill Lynch is concerned that the transmission of client sensitive information 
(e.g. name, address, social security number) will expose financial intermediaries to regulatory 
and reputation risk if the data is mishandled, disclosed, or distributed in an unauthorized 
manner.
14
  Merrill Lynch suggests that the Plan contain security and confidentiality obligations 
 
11
  Merrill Lynch also expresses two concerns that were independently addressed by Professor 
Hamermesh prior to Merrill Lynch’s submission.  First, the Plan, as modified at ¶ 7.6(c), addresses the 
suggestion that financial intermediaries have flexibility to choose more than one distribution option for 
omnibus accounts (for example, choosing one option for open accounts and another for closed accounts).  
Second, the Plan, as modified at ¶ 7.6(f), addresses the possibility of financial intermediaries being 
required to gather data that is not available.  
 
 
12
  See the Plan, ¶¶ 7.6(c) and 7.7(b). 
 
13
  See the Plan, ¶ 7.17(b). 
 
14
  To the extent Merrill Lynch’s comment about regulatory risk refers to the Commission’s 
Regulation S-P (17 C.F.R. Part 248), which limits the ability of financial intermediaries regulated by the 
Commission to disclose nonpublic personal information to nonaffiliated third parties, Regulation S-P 
provides exceptions for disclosures for certain purposes, including: 

 
 9 
and indemnification of financial intermediaries for any misuse or loss of client data.  However, 
the Plan does not require a financial intermediary to transmit client data to the Fund 
Administrator; that is necessary only if such a firm elects to have the Fund Administrator handle 
the distribution.  In addition, paragraph 7.6(f) of the Plan already provides that client 
“information provided by omnibus account holders shall be maintained confidentially and held 
exclusively by the Fund Administrator, and Respondents shall not have access to that 
information.”  Last, in one-on-one communications with financial intermediaries, such firms are 
likely to request that the Fund Administrator enter into a separate confidentiality agreement, and 
the Columbia Fund Administrator has already worked out such an agreement with at least one 
financial intermediary. 
 
B. Additional Modifications 
 
The IDC made the following additional administrative modifications to the Plan in order 
to create more clarity in the distribution process. 
 
• A footnote has been added to ¶ 7.7(a) to clarify that distributions to Individual Retirement 
Accounts will be governed by Plan Section VII.A (¶¶ 7.1 – 7.5). 
 
• To address how network level accounts
15
 should be handled, new ¶ 7.7(b) in sum 
provides the nominee the option, similar to an omnibus account holder, of transmitting 
the distribution to the underlying owner, or giving the Fund Administrator the 
information necessary to permit Rust to distribute funds directly to the underlying owner. 
 
                                                                  
 
• To comply with federal, State, or local laws, rules and other applicable legal requirements.  See 
17 C.F.R. § 248.15(a)(7)(i).  For distributions ordered by the Commission, this exception would 
cover disclosures of nonpublic personal information necessary for making the distributions.  
 
• As necessary to effect, administer, or enforce a transaction that a consumer requests or authorizes, 
including if the disclosure is required, or is a usual, appropriate, or acceptable method to 
administer or service benefits or claims relating to the transaction or the product or service 
business of which it is a part.  See 17 C.F.R. §§ 248.14(a), 248.14(b)(2)(ii).  In the Columbia 
Plan, disclosure is arguably required if the financial intermediary elects to have the Fund 
Administrator handle the distributions.  
 
Moreover, Regulation S-P also imposes limits on the redisclosure and reuse of nonpublic personal 
information.  See 17 C.F.R. 248.11.  For example, if a financial intermediary subject to Regulation S-P 
were ordered by the Commission to transmit nonpublic personal information to a nonaffiliated third party 
for purposes of making distributions under the Columbia Plan, and the intermediary did so in reliance on 
an exception in §§ 248.14 or 248.15, the third party receiving the information could use it only for the 
purpose of making the distributions. 
 
15
  Network level accounts are accounts that represent one underlying owner but for which name, 
address and other necessary identifying information may be maintained by an intermediary.  See the Plan, 
¶ 7.7(b).
 
 

 
 10 
• To clarify what happens to distributions by omnibus account holders that go 
undeliverable or unclaimed for six months, ¶ 7.6(h) was amended to specify that 
unclaimed payments should be returned to the Fund for inclusion in the holdback 
provisions under ¶ 7.9 of the Plan. 
 
• Language was added to ¶ 7.6(f) to clarify that (i) omnibus holders could supply opening 
share balances and subsequent account transactions, in lieu of daily account balances, so 
as to permit Rust to do the necessary distribution allocations among beneficial owners; 
and (ii) quarterly, monthly or yearly records could be used not only if daily records are 
unavailable, but if they are available only at a prohibitive cost (prohibitive being so high 
as to trigger the right under ¶ 7.6(e) to refuse the distribution). 
 
• Language was added to ¶ 7.6(c) clarifying that an omnibus holder entitled to a 
distribution of $1000 or more might choose more than one of the three options to 
distribute the funds, for example to deal differently with open and closed accounts. 
 
• A 90-day deadline was established in ¶ 7.6(c) for omnibus account holders to submit data 
to the Fund Administrator, if they elect an option requiring such a submission. 
 
• ¶ 7.16 has been amended so that the Fair Fund will not terminate before the payment of 
taxes (or the reserve for tax liability) is completed. 
 
• To make clear the ability of the Commission and the Columbia Fair Fund to seek redress 
for conduct less than gross negligence, the Commission and the Columbia Fair Fund have 
been expressly excluded from the persons subject to a clause limiting the liability of the 
IDC and the Fund Administrator in new ¶ 7.17(b). 
 
C. The Bond Requirements of Fair Fund Rule 1105(c) 
 
Fair Fund Rule 1105(c) provides: 
 
Administrator to Post Bond.  If the administrator is not a Commission employee, 
the administrator shall be required to obtain a bond in the manner prescribed in 11 
U.S. C. 322, in an amount to be approved by the Commission.  The cost of the 
bond may be paid for as a cost of administration.  The Commission may waive 
posting of a bond for good cause shown.   
 
17 C.F.R. § 201.1105(c).  The Commission believes that the risk protection provisions of the 
Plan, generally included in ¶ 7.14 and Appendix A of the Plan, and the high cost of bond 
coverage, suffice to constitute good cause for waiving the posting of the bond under Rule 
1105(c).   
 
 
 
 Accordingly, IT IS ORDERED that: 

 
 11 
 
A. Pursuant to Rule 1104 of the Fair Fund Rules, 17 C.F.R. § 201.1104, that the Distribution 
Plan is modified as described above, and approved with such modification;  
 
B. Rust Consulting, Inc. is appointed as the Fund Administrator; and   
 
C. The bond requirement of Rule 1105(c) of the Commission’s Rules on Fair Fund and 
Disgorgement Plans, 17 C.F.R. 201.1105(c), is waived for good cause shown. 
 
 
 By the Commission. 
 
Nancy M. Morris 
                                                                                                Secretary            
 

UNITED STATES OF AMERICA 
Before the 

SECURITIES AND EXCHANGE COMMISSION 
 
 
SECURITIES EXCHANGE ACT OF 1934   
Release No.  55598 / April 6, 2007 
 
Administrative Proceeding  
File No. 3-11814 
____________________________________ 
                                                               :  
In the Matter of               :   
                                                            :   
COLUMBIA MANAGEMENT  :  Order Approving a 
ADVISORS, INC. AND COLUMBIA :  Distribution Plan 
FUNDS DISTRIBUTOR, INC.  : 
      : 
  Respondents.   : 
____________________________________: 
 
 

I.  
 
 On February 9, 2005, in the above-captioned matter, the Commission issued an Order 
instituting and simultaneously settling public administrative and cease-and-desist proceedings 
against Columbia Management Advisors, Inc. and Columbia Funds Distributor, Inc. (the 
“Columbia Order”).  In the Columbia Order, the Commission authorized and established a Fair 
Fund of $140 million in disgorgement and penalties paid by Columbia Management Advisors, Inc. 
and Columbia Funds Distributor, Inc. (collectively, “Columbia”).  According to the Columbia 
Order, the Fair Fund is to be distributed to investors injured by market timing in the Columbia 
mutual fund complex (“Columbia Funds”) pursuant to a distribution plan to be developed by an 
Independent Distribution Consultant (the “IDC”).  In February 2005, Columbia engaged 
Lawrence Hamermesh, a Professor of Corporate and Business Law at Widener University 
School of Law in Wilmington, Delaware, as the IDC. 



 

 2 

 
On June 5, 2006, the Commission’s Division of Enforcement submitted a proposed 

distribution plan to the Commission’s Office of the Secretary (the “Plan”).  The Plan provides for 
distribution to all eligible investors of their proportionate share of the disgorgement and civil 
penalties paid by Columbia to compensate such investors for injury they suffered as a result of 
market timing in Columbia Funds for the period spanning at least 1998 through October 2003.  
The aggregated Fair Fund includes $140 million plus any accumulated interest (the “Columbia 
Fair Fund”).  The IDC will calculate eligible investors’ proportionate shares of the Columbia 
Fair Fund based on information contained in Columbia’s records, as well as records obtained 
from third-party intermediaries, obviating any need for a claims process.   
 
 In accordance with the Commission’s Rules on Fair Fund and Disgorgement Plans (the 
“Fair Fund Rules”), 17 C.F.R. § 201.1100, et seq., the Plan proposes a Fund Administrator and 
sets forth, among other things, procedures for the receipt of additional funds; categories of 
persons potentially eligible to receive proceeds from the Columbia Fair Fund; procedures for 
providing notice to such persons of the existence of the fund and their potential eligibility to 
receive proceeds; procedures for the administration of the fund, including provisions for filing 
tax returns; and a proposed date for the termination of the Columbia Fair Fund.   
 

Rust Consulting, Inc., proposed in the Plan as the Fund Administrator, has not posted the 
bond generally required of third-parties under Fair Fund Rule 1105(c).1  Rather, the Plan 
incorporates several layers of protection for the Columbia Fair Fund.  Among other things, under 
the Plan:  (1) the Fund Administrator will have no custody, and only restricted control, of the 
Columbia Fair Fund; (2) assets of the Columbia Fair Fund will be held by the United States 
Department of the Treasury, Bureau of Public Debt (“Treasury”) until no more than two business 
day before checks or wires are transmitted to eligible investors; (3) upon transfer from Treasury, 
funds will be held in an escrow account until needed to satisfy a presented check or wire; (4) 
upon presentment of checks or wire instructions, funds will be subject to a “positive pay file” 
system before being honored by the escrow bank; (5) both the escrow bank and the Fund 
Administrator will maintain throughout this process insurance and/or a financial institution bond 
that covers errors and omissions, misfeasance and fraud; and (6) because the disbursements to 
investors will be made in tranches, at no time will the funds held at the bank ever approach the 
amount covered by the insurance. 
 

On July 19, 2006, the Commission published the Plan and issued a Notice of Proposed 
Distribution Plan and Opportunity for Comment (Exchange Act Release No. 54175) pursuant to 
Rule 1103 of the Fair Fund Rules, 17 C.F.R. § 201.1103.  The Notice advised interested parties 
that they could obtain a copy of the Plan at http://www.sec.gov/litigation/admin/2006/34-54175-
pdp.pdf, or by submitting a written request to Celia D. Moore, United States Securities and 
Exchange Commission, 33 Arch Street, 23rd Floor, Boston, MA 02110.  The Notice also advised 
that all persons desiring to comment on the Plan could submit their comments, in writing, no 
later than August 18, 2006. 

 

                     
1  Based on estimates provided to the staff of the Commission, the cost of a bond could be in the 
millions of dollars.  



 

 3 

In response to the Notice, the Spark Institute, Inc. (“Spark”), the Coalition of Mutual 
Fund Investors (“CMFI”), the American Bankers Association (“ABA”), and Merrill Lynch & 
Co., Inc. (“Merrill Lynch”) submitted public comments to the Office of the Secretary.  The 
Commission staff engaged in subsequent communications with the IDC to discuss the issues that 
each commenter raised in its respective letter.  In general, the Spark Letter seeks relief on behalf 
of intermediaries for non-IRA Retirement Accounts2 eligible for a distribution under the Plan 
from fiduciary obligations and costs that may arise from distributions.3  The CMFI Letter, 
written on behalf of individual mutual fund investors, expresses concern about the procedures by 
which the IDC will seek investor information and distribute Fair Fund money in connection with 
omnibus accounts.  The ABA Letter, written on behalf of banks and trust companies, raises 
questions about procedures by which omnibus account holders will recoup expenses and 
expresses concern about the accuracy of distribution amounts.  Merrill Lynch’s letter seeks 
additional protections for financial intermediaries in terms of repayment of costs, limitation of 
liability, and transmission of account holder data. 

 
After careful consideration, the Commission has concluded that the Plan should be 

modified to include, among other things, additional detail concerning procedures applicable to 
non-IRA Retirement Accounts, and that the Plan should be approved with such modifications.  
The Commission has further determined that, for good cause shown, the bond required under 
Fair Fund Rule 1105(c) will be waived. 

 
II.  

 
A. Public Comments on the Plan 
 

1. The Spark Letter 
 
The Spark letter, dated August 18, 2006, is written on behalf of “retirement plan service 

providers that will be responsible for reconstructing accountholder balance information, making 
certain allocations, receiving distributions, and making distributions to plan participants who are 
the intended beneficiaries of a substantial portion of the distribution at issue.”  In its letter, Spark 
asserts that, under the Plan and pursuant to Department of Labor (“DOL”) April 19, 2006 Field 
Assistance Bulletin (2006-01) (the “FAB”), a retirement plan record keeper that is not otherwise 

                     
2  “Retirement Account” as used in the Plan and herein, means any account of an employee benefit 
plan, as such plans are defined in section 3(3) of the Employee Retirement Income Security Act of 1974, 
29 U.S.C. 1001, et seq. (“ERISA”), which is not an Individual Retirement Account, whether or not the 
plan is subject to Title I of ERISA.   
 
3  The Spark Letter included one additional comment regarding the 180-day deadline for 
distributions with respect to omnibus accounts described in ¶ 7.6(h) of the Plan.  Spark had concerns that 
Retirement Account service providers would not have adequate time to identify the affected plans and 
obtain the required distribution instructions.  The 180-day deadline applies only to the distributions with 
respect to omnibus accounts.  There is no comparable deadline in ¶ 7.7 for Retirement Accounts.  
Moreover, even if the 180-day deadline in Plan ¶ 7.6(h) did apply to Retirement Accounts, ¶ 7.6(h) 
explicitly states that the deadline can be extended for good cause. 
 



 

 4 

                    

a retirement plan fiduciary must choose between assuming fiduciary obligations under ERISA 
and replicating the IDC’s calculations.4  Spark further asserts that the effort and cost associated 
with gathering daily accountholder information for a 5 year period substantially limits the ability 
of a record keeper or other intermediary to use the IDC’s methodology and thus, fall within the 
Safe Harbor.  Finally, Spark requests that the Fund Administrator provide an estimate of the 
potential cost reimbursement of expenses to retirement plan service providers so that the plan 
record keeper and the Fund Administrator can determine the most cost effective way to handle 
the distribution.  The Commission addresses these issues below. 

 
As is evident from the FAB, fiduciary obligations accompanying a distribution under a 

distribution plan are not new developments under the law.  Rather, these obligations arise under 
pre-existing ERISA legislation and common law.5  In sum, assuming fiduciary duties under 
ERISA is not a new possibility for record keepers or other ERISA plan intermediaries in 
connection with a distribution of litigation proceeds.  Accordingly, requiring intermediaries to 
distribute funds in accordance with fiduciary duties is neither inappropriate nor unreasonable.   

 
Nevertheless, certain modifications to the Plan are appropriate in order to (1) assist Spark 

members and others similarly situated in understanding the Plan and complying with their 
responsibilities under the law; and (2) provide some less costly distribution alternatives in 
connection with non-IRA Retirement Accounts and thereby increase the likelihood that 
distributions will be made through the plan participant level: 

 
• To improve the clarity of the section concerning non-IRA Retirement Accounts, 

“Retirement Accounts” has been defined (Plan, ¶ 7.7(a)); 
 

• Alternative distribution methodologies have been added to the Plan to provide 
non-IRA Retirement Account intermediaries additional means to distribute funds 
in accordance with their fiduciary, contractual, and/or legal obligations.  (Plan,  
¶ 7.7(a)). 

 
The foregoing modifications to the Plan address some concerns of Spark members and 

others similarly situated by enabling them to perform a precise cost benefit analysis, and to 

 
4  The FAB, in essence, provides a regulatory safe harbor to intermediaries using an IDC’s 
methodology (the “Safe Harbor”), providing:  “[i]f an IDC, as part of its distribution plan approved by the 
SEC, makes available to an intermediary or requires, as a condition to the distribution, that the 
intermediary utilize a particular methodology for allocating settlement fund proceeds among individual 
omnibus account clients, the [DOL] will, as an enforcement matter, view the application of such 
methodology to the allocation of settlement fund proceeds among individual omnibus account clients as 
satisfying the requirements of section 404(a) with respect to the methodology for allocating assets to 
employee benefit plans,” as long as such methodology is implemented prudently.  FAB at p. 3.   
 
5  See, e.g., FAB at p. 2 (citing ERISA and “ordinary notions of property rights”).  



 

 5 

develop and seek approval of a distribution methodology in advance of performing any 
distribution, thereby possibly avoiding the assumption of fiduciary responsibility.6    

 
With regard to Spark’s request for an estimate of cost reimbursement, the retirement plan 

service provider, not the Fund Administrator, is in the best position to estimate reimbursement 
costs.  Moreover, in view of the comparatively low cost alternatives that will now be included in 
the Plan specifically for non-IRA Retirement Accounts, retirement plan record keepers should 
determine the most cost effective way to handle the distribution. 
 

2. The CMFI Letter 
 

The CMFI comments are in furtherance of “the interests of individual mutual fund 
investors.”  In its Comment Letter dated August 17, 2006, CMFI expressed three concerns 
related to omnibus accounts:  the Plan overly relies on the cooperation of financial intermediaries 
to obtain identity and transaction information; true level of investment activity can only be 
identified at the sub-account level; and certain scenarios may result in investors not receiving any 
distribution.  The Commission addresses these points below.   

  
CMFI suggests that the Plan should require the Columbia Funds to request from 

intermediaries, pursuant to Rule 22c-2 of the Investment Company Act (17 C.F.R. § 270.22c-2) 
(“Rule 22c-2”), the information currently sought through cooperation.  Rule 22c-2(a)(2) provides 
that a fund or its principal underwriter or transfer agent must enter into a written agreement with 
each financial intermediary of the fund under which the intermediary must agree to “provide 
promptly, upon request by a fund, the Taxpayer Identification Number of all shareholders who 
have purchased, redeemed, transferred, or exchanged…,” along with the amount and dates of 
such transactions.7  Under Rule 22c-2, funds must enter into shareholder information agreements 
with their intermediaries by April 16, 2007, and must be able to request and promptly receive 
shareholder identity and transaction information pursuant to shareholder information agreements 
by October 16, 2007.  See 71 Fed. Reg. at p. 58262, § III.  As a result, Rule 22c-2 cannot be used 
at this time as a means to request investor information from intermediaries. 

 
CMFI also states that it is difficult to know which trades in omnibus accounts are market 

timing transactions because the trading data is aggregated, therefore a better estimate of market 
timing gains would result if the IDC evaluates all account data at the sub-account (i.e., the 
individual investor) level.  However, the Columbia Plan’s approach is reasonable under the 
circumstances, and CMFI’s proposal does not offer a demonstrably superior alternative.  The 
IDC estimates that evaluating account data at the investor level would take at least an additional 
year and would cost as much as several million dollars, not including the costs (that are difficult 
                     

6  See FAB at p. 4 and note 8 (“If the receipt, allocation and/or distribution services of the 
intermediary, and compensation for such services, are carried out in accordance with the directions and 
approval of appropriate plan fiduciaries, the intermediary may be able to avoid fiduciary status and issues 
relating to self-dealing under ERISA.”).   
 
7  See Rule 22c-2(c)(5) (defining “shareholder information agreement”). 
 



 

 6 

                    

to estimate) that would be incurred by the omnibus account holders in generating and providing 
the additional information.  Moreover, there would be no net benefit to investors overall in 
attempting to assess account data at the investor level, because the amount to be distributed is 
fixed. 

 
CMFI also describes several scenarios in which an individual investor in an omnibus 

account may not receive any distribution.  The first scenario is where an intermediary refuses to 
accept a distribution on behalf of its omnibus investors if it estimates that the cost of identifying 
beneficial owners and distributing funds exceeds the distribution amount.  CMFI comments that 
this scenario penalizes investors who are customers of intermediaries with less than efficient 
recordkeeping systems.  While some investors may be at a disadvantage as a result of having 
selected intermediaries with less efficient systems, the extent of any actual disadvantage is 
uncertain, unquantified, and speculative. 

 
The second scenario occurs where distributions are less than $10.  CMFI suggests that the 

Plan use the methodology proposed by the IDC in the Banc One proceeding to address de 
minimis distributions.8  In the Banc One proceeding, all distributions of less than $10 each will 
be aggregated and then redistributed in sequence to the accounts with the largest provisional 
distributions less than $10, sequentially assigning a distribution of $10 to each account until the 
aggregate is depleted.  However, the Banc One methodology and the Columbia Plan 
methodology are similar in substance.9  Further, the Columbia Plan’s proposed methodology is 
commercially reasonable and this conclusion is not affected by the existence of alternative 
reasonable methodologies. 

 
Last, CMFI is concerned with the $1000 distribution threshold for omnibus accounts.  

CMFI believes that investors in a small omnibus account may be left without a distribution 
because of a potential distribution of less than $1000.  CMFI suggests there should be an 
exception to the $1000 rule for omnibus accounts and/or intermediaries with a small number of 
investors.  The proposed $1000 threshold for omnibus accounts is one of a number of possible 
reasonable alternatives.  To the extent that an omnibus account holder is aware that it would be 
able to distribute in an economical manner an amount less than $1000, the Columbia Plan allows 
the holder to use “any distribution technique . . . in the exercise of its reasonable discretion, 
deem[ed] . . . consistent with its fiduciary, contractual, or other legal obligations.” 

 
8  See Proposed Plan of Distribution in In the Matter of Banc One Investment Advisors Corporation 
and Mark A. Beeson, Admin Proc. File No. 3-11530 (August 7, 2006), at Step Twelve. 
 
9  The Columbia Plan, ¶7.5, uses a two step process to minimize distributions of less than $10.  
First, if an individual shareholder has less than $10 in more than one affected fund, all of those instances 
will be aggregated into a single account such that the single account distribution is greater than $10.  
Next, all those individual shareholders whose total aggregate distribution is still less than $10 will be 
combined, with the resulting sum distributed in $10 units in descending order of dilution harm.  The Banc 
One Plan does not take the first step of aggregating small amounts attributable to individual shareholders.  
Rather, the Banc Once Plan ranks all provisional distributions of less than $10 in descending order and 
recomputes each individual distribution as a $10 unit, in descending order from largest to smallest, until 
the total amount is depleted. 
 



 

 7 

 
3. The ABA Letter 
 
ABA members include banks, savings associations and trust companies.  Its comment 

letter, dated August 18, 2006, questions the procedures by which omnibus account  
holders will recoup costs and receive distribution amounts.10

 
ABA expressed concern that the Plan may not accurately identify the true level of 

investment activity in omnibus accounts because the Plan only reflects net investment activity 
rather than underlying owner activity.  Like CMFI, ABA suggests that the IDC should consider 
full account activity at the individual beneficial owner level.  However, as discussed above, the 
Columbia Plan’s methodology is commercially reasonable and the ABA’s proposal does not 
offer a demonstrably superior alternative. 
 

Next, while acknowledging that the Plan appropriately provides that omnibus account 
holders may recoup costs of reasonable best efforts to identify and distribute funds, ABA 
suggests that the Plan should define “commercially reasonable best efforts” to include additional 
staffing costs, as well as other costs necessary either to obtain data or to delegate to other service 
providers the responsibility for providing owner information.  The Plan need not define 
“commercially reasonable best efforts” in such detail.  If a provider requires additional staffing 
to perform its duties, and that necessity is reasonable, then such out-of-pocket costs will be 
reimbursed. 

 
 
4. The Merrill Lynch Letter
 

                     
10  The ABA letter includes three additional comments.  First, ABA discussed concerns with ¶ 7.6(a) 
of the Plan, which governs distributions to omnibus accounts but specifically exempts from its coverage 
ordinary trusts, pension plans and 529 plans.  ABA questions which method of distribution will be used 
for trusts that invest in mutual funds through omnibus accounts.  The Plan states that trusts, pension plans, 
and 529 plans are not considered omnibus accounts for purposes of the distribution rules under ¶ 7.6.  If a 
trust is an investor in an omnibus account, however, that trust is treated like any other investor in the 
omnibus account.  ABA also expressed concern that the 180 day distribution deadline for omnibus 
accounts in ¶ 7.6(h) will be insufficient if (i) omnibus holders are unable to obtain the necessary 
beneficial owner information from other service providers; (ii) other Fair Fund monies are distributed 
simultaneously; or (iii) mutual funds begin to request information from banks and other intermediaries as 
permitted under new Rule 22c-2.  However, ¶ 7.6(h) expressly states that the 180 day distribution 
deadline can be extended for good cause.  Last, ABA asks for further guidance on whether a de minimus 
amount can be used to offset costs, returned to the account, or spread to the other beneficial owners if a 
participant cannot be located.  The Plan, ¶¶ 6.2 and 7.9, states that if persons to whom a distribution 
would otherwise be made cannot be located, the unclaimed amounts are to be added back to the Columbia 
Funds.  In addition, ABA requests further guidance on appropriate algorithm calculations for 
intermediaries that opt to perform all calculations necessary to make distributions to investors.  The Plan ¶ 
7.6(c)(iii) states that if an intermediary elects this option, it will be provided the appropriate 
specifications. 
 



 

 8 

                    

Merrill Lynch’s comment letter, dated January 8, 2007, seeks additional protections for 
financial intermediaries in the form of repayment of out of pocket costs, extending the limitation 
of liability to include the firms involved in the distribution of funds, and including protections 
related to the transmission of beneficial owner data.11

 
Merrill Lynch would like the Plan to make clear that financial intermediaries and 

servicing organizations that expend time and resources ensuring that clients receive funds are 
reimbursed for the costs of distributing assets and not just the costs of gathering and supplying 
data.  To the extent that Merrill Lynch’s comment relates to omnibus account and network level 
account holders, the Plan as currently written prescribes the contemplated reimbursement.12  The 
IDC did not intend for the Plan to reimburse costs incurred by plan administrators of Retirement 
Accounts, however.  As discussed above with respect to the Spark letter, in light of the 
comparatively low cost alternatives that will now be included in the Plan specifically for non-
IRA Retirement Accounts, retirement plan record keepers are best positioned to determine the 
most cost effective way to handle the distribution. 

 
Merrill Lynch suggests that the Plan contain a clause limiting the liability of financial 

intermediaries in facilitating the distributions.  Prior to Merrill Lynch’s comment, the IDC 
amended the Plan to include a clause which provides, in relevant part, that the Fund 
Administrator, the IDC, and their designees, agents, and assigns, cannot be held liable to any 
person except upon a finding of gross negligence or more.13  This clause expressly excepts the 
Commission and/or the Columbia Fair Fund from persons subject to the liability limitations.  
This clause is merely an expression of the current state of the law, however, and neither the 
Commission nor the IDC has authority to expand or contract the liability of financial 
intermediaries.  If a financial intermediary is subject to any liability, that is because of the 
intermediary’s relationship with its client.   

 
Finally, Merrill Lynch is concerned that the transmission of client sensitive information 

(e.g. name, address, social security number) will expose financial intermediaries to regulatory 
and reputation risk if the data is mishandled, disclosed, or distributed in an unauthorized 
manner.14  Merrill Lynch suggests that the Plan contain security and confidentiality obligations 

 
11  Merrill Lynch also expresses two concerns that were independently addressed by Professor 
Hamermesh prior to Merrill Lynch’s submission.  First, the Plan, as modified at ¶ 7.6(c), addresses the 
suggestion that financial intermediaries have flexibility to choose more than one distribution option for 
omnibus accounts (for example, choosing one option for open accounts and another for closed accounts).  
Second, the Plan, as modified at ¶ 7.6(f), addresses the possibility of financial intermediaries being 
required to gather data that is not available.   
 
12  See the Plan, ¶¶ 7.6(c) and 7.7(b). 
 
13  See the Plan, ¶ 7.17(b). 
 
14  To the extent Merrill Lynch’s comment about regulatory risk refers to the Commission’s 
Regulation S-P (17 C.F.R. Part 248), which limits the ability of financial intermediaries regulated by the 
Commission to disclose nonpublic personal information to nonaffiliated third parties, Regulation S-P 
provides exceptions for disclosures for certain purposes, including: 



 

 9 

and indemnification of financial intermediaries for any misuse or loss of client data.  However, 
the Plan does not require a financial intermediary to transmit client data to the Fund 
Administrator; that is necessary only if such a firm elects to have the Fund Administrator handle 
the distribution.  In addition, paragraph 7.6(f) of the Plan already provides that client 
“information provided by omnibus account holders shall be maintained confidentially and held 
exclusively by the Fund Administrator, and Respondents shall not have access to that 
information.”  Last, in one-on-one communications with financial intermediaries, such firms are 
likely to request that the Fund Administrator enter into a separate confidentiality agreement, and 
the Columbia Fund Administrator has already worked out such an agreement with at least one 
financial intermediary. 

 
B. Additional Modifications 
 

The IDC made the following additional administrative modifications to the Plan in order 
to create more clarity in the distribution process. 
 

• A footnote has been added to ¶ 7.7(a) to clarify that distributions to Individual Retirement 
Accounts will be governed by Plan Section VII.A (¶¶ 7.1 – 7.5). 

 
• To address how network level accounts15 should be handled, new ¶ 7.7(b) in sum 

provides the nominee the option, similar to an omnibus account holder, of transmitting 
the distribution to the underlying owner, or giving the Fund Administrator the 
information necessary to permit Rust to distribute funds directly to the underlying owner. 

 
                                                                  
 

• To comply with federal, State, or local laws, rules and other applicable legal requirements.  See 
17 C.F.R. § 248.15(a)(7)(i).  For distributions ordered by the Commission, this exception would 
cover disclosures of nonpublic personal information necessary for making the distributions.  

 
• As necessary to effect, administer, or enforce a transaction that a consumer requests or authorizes, 

including if the disclosure is required, or is a usual, appropriate, or acceptable method to 
administer or service benefits or claims relating to the transaction or the product or service 
business of which it is a part.  See 17 C.F.R. §§ 248.14(a), 248.14(b)(2)(ii).  In the Columbia 
Plan, disclosure is arguably required if the financial intermediary elects to have the Fund 
Administrator handle the distributions.  

 
Moreover, Regulation S-P also imposes limits on the redisclosure and reuse of nonpublic personal 
information.  See 17 C.F.R. 248.11.  For example, if a financial intermediary subject to Regulation S-P 
were ordered by the Commission to transmit nonpublic personal information to a nonaffiliated third party 
for purposes of making distributions under the Columbia Plan, and the intermediary did so in reliance on 
an exception in §§ 248.14 or 248.15, the third party receiving the information could use it only for the 
purpose of making the distributions. 
 
15  Network level accounts are accounts that represent one underlying owner but for which name, 
address and other necessary identifying information may be maintained by an intermediary.  See the Plan, 
¶ 7.7(b). 
 



 

 10 

• To clarify what happens to distributions by omnibus account holders that go 
undeliverable or unclaimed for six months, ¶ 7.6(h) was amended to specify that 
unclaimed payments should be returned to the Fund for inclusion in the holdback 
provisions under ¶ 7.9 of the Plan. 

 
• Language was added to ¶ 7.6(f) to clarify that (i) omnibus holders could supply opening 

share balances and subsequent account transactions, in lieu of daily account balances, so 
as to permit Rust to do the necessary distribution allocations among beneficial owners; 
and (ii) quarterly, monthly or yearly records could be used not only if daily records are 
unavailable, but if they are available only at a prohibitive cost (prohibitive being so high 
as to trigger the right under ¶ 7.6(e) to refuse the distribution). 

 
• Language was added to ¶ 7.6(c) clarifying that an omnibus holder entitled to a 

distribution of $1000 or more might choose more than one of the three options to 
distribute the funds, for example to deal differently with open and closed accounts. 

 
• A 90-day deadline was established in ¶ 7.6(c) for omnibus account holders to submit data 

to the Fund Administrator, if they elect an option requiring such a submission. 
 

• ¶ 7.16 has been amended so that the Fair Fund will not terminate before the payment of 
taxes (or the reserve for tax liability) is completed. 

 
• To make clear the ability of the Commission and the Columbia Fair Fund to seek redress 

for conduct less than gross negligence, the Commission and the Columbia Fair Fund have 
been expressly excluded from the persons subject to a clause limiting the liability of the 
IDC and the Fund Administrator in new ¶ 7.17(b). 
 

C. The Bond Requirements of Fair Fund Rule 1105(c) 
 
Fair Fund Rule 1105(c) provides: 
 
Administrator to Post Bond.  If the administrator is not a Commission employee, 
the administrator shall be required to obtain a bond in the manner prescribed in 11 
U.S. C. 322, in an amount to be approved by the Commission.  The cost of the 
bond may be paid for as a cost of administration.  The Commission may waive 
posting of a bond for good cause shown.   
 

17 C.F.R. § 201.1105(c).  The Commission believes that the risk protection provisions of the 
Plan, generally included in ¶ 7.14 and Appendix A of the Plan, and the high cost of bond 
coverage, suffice to constitute good cause for waiving the posting of the bond under Rule 
1105(c).   
 
 
 
 Accordingly, IT IS ORDERED that: 



 

 11 

 
A. Pursuant to Rule 1104 of the Fair Fund Rules, 17 C.F.R. § 201.1104, that the Distribution 

Plan is modified as described above, and approved with such modification;  
 

B. Rust Consulting, Inc. is appointed as the Fund Administrator; and   
 
C. The bond requirement of Rule 1105(c) of the Commission’s Rules on Fair Fund and 

Disgorgement Plans, 17 C.F.R. 201.1105(c), is waived for good cause shown. 
 
 
 By the Commission. 

 
Nancy M. Morris 

        Secretary 
 


	SECURITIES EXCHANGE ACT OF 1934   
	Release No.  55598 / April 6, 2007