SEC Proposes Fair Fund

By Warren S. Hersch

January 21, 2010 at 07:00 PM

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The Securities and Exchange Commission has come up with a plan for compensating some investors affected by variable annuity market timers.

The SEC has a proposed a "fair fund" distribution plan in connection with administrative and cease-and-desist proceedings against 3 units of Conseco, Inc., Carmel, Ind. (NYSE:CNO) — CIHC Inc., Conseco Services L.L.C., and Conseco Equity Sales Inc. – that were settled in August 2004.

Members of the public have 30 days to comment on the plan, officials say.

Market timers, or speculators who complete many quick trades in an effort to profit from market inefficiencies, hurt the affected investors by channeling trades through Conseco VA products from December 1999 to October 2002, officials say.

In the August 2004 settlement order, the SEC authorized the establishment of a $15 million fair fund to pay disgorgement and penalties to the affected investors, officials say.

If the distribution plan is approved, investors who held Conseco VA contracts at the time and are not "Identified Market Timers" can get restitution, officials say. The amounts will be calculated from information in the Conseco units' records, and records obtained from third-parties. The SEC is not using a claims process to distribute the money in the fund.

"This matter, which related to a company that was sold in 2002 before the Conseco bankruptcy, was formally resolved with the SEC in 2004," Conseco says in a statement. "We have been working with an independent distribution consultant and are pleased that the plan of distribution is moving forward."

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