The Securities and Exchange Commission (SEC) has settled a cease-and-desist lawsuit against the Utah Educational Savings Plan Trust (UESP). The UESP administers Utah’s educational savings plan. The settlement resolves the first ever charges against a Section 529 savings plan.
The charges stem from an investigation of the plan’s former director, Dale C. Hatch. Flaws were found in the savings plan’s operations and internal accounting controls. Investigators found that the savings plan failed to fully allocate investor gains and losses to investor accounts. In a 2004 press release, the UESP misrepresented the misappropriated funds as “administrative” and made false claims that investors had not been harmed. The savings plan also failed to provide adequate disclosure concerning its operations and flaws in accounting practice.
“The UESP discovered its system for recording and accounting for investor transactions was flawed, but failed to disclose some of those defects and the risks posed to investors,” said Kenneth D. Israel, Jr., the SEC Administrator for the Salt Lake District. “The Commission’s action ensures the return of investor funds, that UESP will fix its system, and that material fact related to investor transactions and earnings will be disclosed.”
The SEC filed a separate civil action against Hatch alleging he segregated unallocated participant funds into his own undisclosed nominee UESP accounts and moved $85,000 of the unallocated $505,976 into his personal accounts. The action seeks an injunction from future antifraud violations, disgorgement, and civil money penalties. The UESP cooperated in the SEC investigation and consented to the entry of the Commission’s order without admitting or denying the SEC findings.
“The changes required by the SEC, as well as many other improvements, have already been implemented, and our program is better than ever,” said the current UESP Director Lynne Ward in a statement to CNN Money.
The Commission also issued an investor guide to Section 529 educational savings plans. The guide provides basic investor information and discusses the different types of savings plans, their disclosures, tax implications, fees, and expenses. See this guide at SEC website.
“The best way to make an informed decision about any college savings plan is to understand its terms,” Susan Ferris Wyderko, SEC director for investor education said. “While our new guide is a good place to start, a college saving’s plan’s disclosure documents remain required reading.”