CGM Qualified Settlement Fund
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PLEASE READ IF YOU RECEIVED AN EMAIL FROM STATE STREET ABOUT THIS DISTRIBUTION ADMINISTRATION


Several weeks ago, State Street sent an email to its customers that contained inaccurate information about the administration of the CGM Qualified Settlement Fund. The email incorrectly referred to the present administration as a “class action” settlement involving Convergex. The present administration does not involve a class action; rather, it involves a distribution to be made from a Fair Fund established by the Securities and Exchange Commission in connection with a regulatory settlement, as described below.

In December 2013, Convergex resolved parallel regulatory investigations conducted by the Securities and Exchange Commission and the US Department of Justice. These investigations focused on the routing of certain global trading and transition management customer orders to the former Bermuda trading desk of Convergex Global Markets (“CGM”), where they were net traded. The investigations also involved the misconduct of certain former employees who, at times between 2006 and 2011, concealed this activity and the compensation earned by CGM on those orders. Please see the links below for the settlement Order and the Order approving the Plan of Distribution for the Fair Fund.

The fact that you received the communication from State Street does not mean that you are entitled to any distribution from the Fair Fund. If you did not receive a letter from the Fund Administrator providing distribution information, then you are most likely not eligible to participate in the Fair Fund, even if you received an email from State Street. Convergex has examined all relevant trades that were executed directly with Convergex and we, as the SEC-appointed Fund Administrator, have also independently reviewed these trades. We have reached out to all Direct Customers who were affected by the settlement and who are eligible to participate in this administration.

If you did not receive a letter from the Fund Administrator, we cannot rule out the possibility that trades made on your behalf by an investment adviser or manager may have been impacted. If a party acting on your behalf was a Direct Customer of Convergex and was impacted by the relevant conduct, we would have contacted that party in early December 2015. That party then has the option either (a) to receive the payment directly from the Fair Fund and distribute it to its underlying customers or (b) to provide us with contact information for its underlying customers so that we can contact them directly. Direct Customers of Convergex should be responding to us with their election in the next few weeks.

If you are not entitled to any refund, you will not be contacted further. If you are in fact entitled to any refund from the Fair Fund as a result of trades that were conducted on your behalf by another Direct Customer of Convergex, that will only become clear when we receive the elections from Convergex’s Direct Customers who were impacted. You will then either receive your refund directly from that firm, or you will be contacted by us to provide payment instructions.

If you have any further questions, please feel free to contact us.

Updated 2/5/16

BACKGROUND

On December 18, 2013, the Securities and Exchange Commission (the “SEC”) issued the Order Instituting Administrative and Cease-and-Desist Proceedings Pursuant to Sections 15(b) and 21C of the Securities Exchange Act of 1934 and Section 203(e) of the Investment Advisers Act of 1940, Making Findings, and Imposing Remedial Sanctions and a Cease-and-Desist Order (the “Order”) against G-Trade Services LLC, ConvergEx Global Markets Limited and ConvergEx Execution Solutions LLC (collectively, “Respondents”).

The SEC action arose from the Respondents’ practice of routing certain global trading and transition management customer orders offshore to CGM in order to charge undisclosed mark-ups and mark-downs (referred to as “trading profits” or “TP”) in addition to disclosed commissions charged by other Respondents on those orders. The conduct involved charging TP on orders placed by customers that had a direct contractual account or trading relationship with one or more of the Respondents (the “Direct Customers”). These orders involved either securities traded in U.S. markets (“U.S. securities”) or securities traded in non-U.S. markets (“non-U.S. securities”), and in many instances both U.S. and non-U.S. securities. Pursuant to the Order, Respondents paid a total of $107,424,429 consisting of disgorgement of $79,802,448 (which represents the trading profits earned on U.S. securities that had been routed to and net traded by CGM during the relevant time period); prejudgment interest of $7,621,981; and a civil money penalty of $20,000,000. The Order created a fair fund pursuant to Section 308(a) of the Sarbanes-Oxley Act of 2002, as amended, the CGM Qualified Settlement Fund (hereinafter, “Fair Fund”). The Fair Fund constitutes a Qualified Settlement Fund under Section 468B(g) of the Internal Revenue Code, 26 U.S.C. § 468B(g), and related regulations, 26 C.F.R. §§ 1.468B-1 through 1.468B-5. The Fair Fund is comprised of the $107,424,429 paid by Respondents, plus $2,011,889 arising from the related actions against additional respondents and interest earned thereon, for a total of $109,440,738.32 as of January 20, 2016.

ELIGIBILITY

The purpose of this administration is to refund a portion of the TP taken on orders placed by Respondents’ Direct Customers between October 2, 2006 and December 31, 2011 (the “Relevant Period”).

Direct Customers are entitled to receive a distribution from the Fair Fund and have been sent letters (“Customer Letters”) that set forth the amount of their distribution payments. The methodology set forth in the Plan of Distribution provides for full refunds of TP on U.S. securities and pro rata refunds of TP on non-U.S. securities. A copy of the Plan of Distribution is posted here. Customers will receive a payment in the amount equal to (i) the TP on U.S securities, (ii) a pro rata portion of the TP on non-U.S. securities, or, where applicable, both (i) and (ii).

Customers who received a Customer Letter may view certain trade data summarizing the TP that was earned on their affected trades and, where applicable, subaccount information relating to their underlying clients (the “Indirect Customers”) through the secure portal established by the Fund Administrator for this matter (the “Portal”). In order to receive a distribution, customers must log onto the Portal by entering the ID Number and Control Number printed on the first page of the Customer Letter and follow instructions for electing either to receive payment directly or to designate Indirect Customers to receive payment.

The deadline for submitting all required information, including payment elections, payment instructions, and required tax information, is February 12, 2016.

For additional information, please view the administration’s Frequently Asked Questions, or you may contact the Fund Administrator using the contact information posted here.