UNITED STATES OF AMERICA

Before the

SECURITIES AND EXCHANGE COMMISSION

ADMINISTRATIVE PROCEEDING

File No. 3-18909

____________________________________

:

In the Matter of :

:

Fifth Street Management, LLC : PROPOSED PLAN OF DISTRIBUTION

:

Respondent. :

____________________________________:

Introduction

This proposed Plan of Distribution (the “Plan”) has been developed pursuant to Rule 

1101 of the Securities and Exchange Commission’s (“Commission”) Rules on Fair Fund and 

Disgorgement Plans (“Rules”), 17 C.F.R. § 201.1101. The Plan provides for a distribution of the 

funds collected in the above-referenced proceeding from Fifth Street Management, LLC (“Fifth 

Street”) to compensate Fifth Street’s former business development company (“BDC”) clients for 

the misallocation of expenses in 2013 and 2014.

Background

1. On December 3, 2018, the Commission issued an Order Instituting Administrative 

and Cease-and-Desist Proceedings Pursuant to Section 8A of the Securities Act of 1933, Section 

21C of the Securities Exchange Act of 1934, Sections 203(e) and 203(k) of the Investment 

Advisers Act of 1940, and Section 9(f) of the Investment Company Act of 1940, Making 

Findings, and Imposing Remedial Sanctions and a Cease-and-Desist Order (the “Order”)1against 

Fifth Street. The Commission determined, in relevant part, that, in 2013 and 2014, Fifth Street 

improperly allocated to Fifth Street’s former BDC clients -- Fifth Street Finance Corp. (“FSC”) 

and Fifth Street Senior Floating Rate Corp. (“FSFR”) (collectively, the “BDC Clients”) -- rent 

and other overhead expenses, and certain compensation expenses that Fifth Street should have 

paid. The Commission ordered Fifth Street to pay disgorgement of $1,999,115.86, prejudgment 

interest of $334,545.65, and a civil money penalty of $1,650,000, and created a Fair Fund 

pursuant to Section 308(a) of the Sarbanes-Oxley Act of 2002 for the ordered monetary relief 

(the “Fair Fund”). Fifth Street has since paid in full, and the Fair Fund currently holds 

approximately $4 million, comprised of disgorgement, prejudgment interest, civil money

penalty, and accrued interest. 

 

1

Securities Act Rel. No. 10581 (Dec. 3, 2018). 
2

2. The Fair Fund is deposited in an interest-bearing account at the United States 

Treasury Department’s (“Treasury”) Bureau of the Fiscal Service (“BFS”). All BFS fees will be 

paid by the Fair Fund in accordance with ¶ 60. Any additional funds timely received will be 

added to the Fair Fund for disbursement to Eligible Claimants (defined below) pursuant to the 

Plan. The assets of the Fair Fund are subject to the continuing jurisdiction and control of the 

Commission. The Plan is subject to approval by the Commission, and the Commission retains 

jurisdiction over implementation of the Plan.

Fund Administrator

3. The Commission has appointed Epiq Class Action & Claims Solutions, Inc. 

(“Epiq”) as the Fund Administrator (the “Fund Administrator”).

2

 Pursuant to Rule 1105(a) of 

the Rules, 17 C.F.R. § 201.1105(a), the Fund Administrator may be removed at any time by 

order of the Commission or hearing officer. 

4. The Fund Administrator has obtained a bond in the manner prescribed by Rule 

1105(c) of the Rules in the amount of $3,983,661.51. The bond premium will be paid from the 

Fair Fund in accordance with ¶ 60.

5. The Fund Administrator will be responsible for administering the Fair Fund in 

accordance with the Plan. This will include, among other things, taking reasonable steps to 

identify and contact Potential Claimants (defined below); obtaining accurate mailing information 

for Potential Claimants; establishing a website and staffing a call center to address inquiries 

during the claims process; developing a claims database; preparing accountings; cooperating 

with the Tax Administrator (defined below) to ensure compliance with tax laws, rules, and 

regulations; advising Potential Claimants of claim deficiencies and providing an opportunity to 

cure any documentary defects; as necessary, determining and complying with foreign 

jurisdictional requirements in implementing the plan; taking antifraud measures, such as 

identifying false, ineligible and overstated claims; making determinations under the criteria in 

the Plan as to Potential Claimant eligibility; advising Potential Claimants of final claim 

determinations; and disbursing the Fair Fund in accordance with the Plan. The Fund 

Administrator may be removed at any time by order of the Commission or hearing officer. 

6. All reasonable fees and expenses of the Fund Administrator will be paid by the 

Fair Fund in accordance with ¶ 60. The Fund Administrator shall submit an invoice quarterly for 

completed services to the Commission staff for filing with the Commission; upon approval of an 

application by the Commission, the Fund Administrator will be paid its reasonable fees and 

expenses for those services. 

 

2 Order Appointing Fund Administrator and Setting Administrator Bond Amount, Exchange Act Rel. No.85684 

(Apr. 18, 2019). 
3

Tax Administrator

7. The Commission has appointed Miller Kaplan Arase LLP as the Tax 

Administrator for the Fair Fund (the “Tax Administrator”).3 The Tax Administrator is required 

to administer the Fair Fund as a Qualified Settlement Fund (“QSF”) 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 Tax Administrator is responsible for, among other things, all income tax 

related reporting requirements including the preparation and filing of tax returns, and compliance 

with the Foreign Account Tax Compliance Act. 

8. The Tax Administrator will be compensated for reasonable fees and expenses 

from the Fair Fund in accordance with its 2019-2021 Engagement Letter Agreement with the 

Commission. All taxes will be paid by the Fair Fund in accordance with ¶ 60.

Definitions

9. As used in the Plan, the following definitions apply:

(a) Administrative Costs. All costs of administering the Fair Fund, including 

taxes, fees, and expenses of tax and fund administration, bond costs, and all 

investment costs. 

(b) BDC Clients. Fifth Street Finance Corp. and Fifth Street Senior Floating 

Rate Corp. 

(c) Claim Deadline. The date by which a Claim Form must be postmarked or, if 

not sent by U.S. Mail, received by the Fund Administrator to avoid the 

barring of any rights of a Potential Claimant to participate in the distribution 

of the Fair Fund. The Claim Deadline shall be ninety (90) days after mailing 

of the Plan Packet. Claim Forms postmarked or, if not sent by U.S. Mail, 

received after the Claim Deadline will not be reviewed and evaluated.

(d) Claim Form. The form designed by the Fund Administrator and approved by 

Commission staff, for the filing of claims in accordance with the Plan. The 

Claim Form will require, at a minimum, sufficient documentation of 

transactions in the Investment such that eligibility under the Plan can be 

determined, tax identification and related information from the Potential 

Claimant as determined necessary by the Fund Administrator in coordination 

with the Tax Administrator, and a certification that the Potential Claimant is 

not an Excluded Party. Claim Forms will be included in the Claims Packet 

mailed by the Fund Administrator to identified Potential Claimants, and will 

be available on the Fair Fund’s website described below, ¶ 13(d). Potential 

Claimants may also request a Claim Form from the Fund Administrator via 

 

3 Order Appointing Tax Administrator, Exchange Act Rel. No. 85742 (Apr. 29, 2019).
4

mail, email, or by calling the toll-free number established for the Fair Fund, 

all of which contact information will be set forth on the Fair Fund’s website.

(e) Claims Packet. The materials relevant to submitting a claim that may be 

provided to identified Potential Claimants, including Potential Claimants who 

request such materials through the Fair Fund’s website or otherwise. The 

Claims Packet will include, at minimum, a copy of the Plan Notice and a 

Claim Form (together with instructions for completing the Claim Form).

(f) Deficiency Notice. The notice sent by the Fund Administrator via United 

States First Class Mail to all Potential Claimants whose claims are deficient 

in one or more ways (e.g., failure to provide required information or 

documentation). The Deficiency Notice will advise the Potential Claimant of 

the reason(s) for the deficiency, notify the Potential Claimant of the 

opportunity to cure such deficiency, and provide instructions regarding what 

is required to do so. The Deficiency Notice shall be sent within sixty (60) 

days of the Claim Deadline. The deadline to cure deficiencies shall be thirty 

(30) days from the date of the Deficiency Notice. 

(g) Determination Notice. The notice, sent by the Fund Administrator by United 

States First Class Mail to each Potential Claimant who submitted a Claim 

Form, setting forth the Fund Administrator’s conclusion concerning 

eligibility of such claim. In the event the claim is denied, the Determination 

Notice will state the reason(s) for such denial and notify the Potential 

Claimant of their opportunity to request reconsideration of their claim. The 

Determination Notice shall be mailed within one hundred fifty (150) days of 

the Claim Deadline.

(h) Distribution Methodology. The methodology used to determine eligibility for 

a distribution under the Plan and to calculate an Eligible Claimant’s 

Distribution Payment as set forth at ¶¶ 31-37.

(i) Distribution Payment. A payment to an Eligible Claimant in accordance with 

the Plan. 

(j) Eligible Claimant. A Potential Claimant who is not an Excluded Party and 

who is determined by the Fund Administrator to be eligible under the Plan for 

a Distribution Payment. 

(k) Excluded Parties. Excluded Parties include the Respondent, its affiliates, 

assigns, subsidiaries, successors-in-interest, and any firm, trust, corporation, 

or other entity in which Respondent has or had a controlling interest during 

the Investment Period; and the Fund Administrator, its employees, and those 

persons assisting the Fund Administrator in its role as Fund Administrator. 

The Claim Form will require all Potential Claimants to certify that they are 

not an Excluded Party. 
5

(l) Investment: Investment in the common stock of the BDC Clients during the 

Investment Period.

(m) Investment Period. April 1, 2013 through December 31, 2014, inclusive, for 

investment(s) in Fifth Street Finance Corp. and September 1, 2013 through 

December 31, 2014, inclusive, for investment(s) in Fifth Street Senior 

Floating Rate Corp.

(n) Minimum Distribution Amount. The specified dollar amount that a 

Distribution Payment must equal or exceed in order for a distribution to be

made to an Eligible Claimant. The Minimum Distribution Amount shall be

$10.00.

(o) Net Fair Fund. The assets of the Fair Fund, including investment income, 

less amounts expended or reserved for Administrative Costs in accordance 

with the Plan. 

(p) Plan Notice. A written notice from the Fund Administrator to Potential 

Claimants informing them of the Plan and its eligibility requirements, 

explaining how to obtain a copy of the approved Plan and Claim Form by 

request or from the Fair Fund’s website, and explaining how to submit a 

claim. 

(q) Potential Claimants. Individuals and entities, or their lawful successors or 

assigns, who held the Investment during the Investment Period. 

(r) Summary Notice. The notice published in print or internet media pursuant to 

¶ 13(h) below. Such notice (the text of which shall be approved by the 

Commission staff) shall include, at a minimum, a statement of the purpose of 

the Fair Fund and the Plan, the means of obtaining a Claims Packet, and the 

Claim Deadline.

Identification and Notification to Potential Claimants

12. The Fund Administrator, as practicable, will use its best efforts to identify 

Potential Claimants from a review of trading records and account information provided by the 

transfer agent for the BDC Clients, registered broker dealers, and any other sources available to 

it. 

13. Within thirty (30) days of Commission approval of the Plan, the Fund 

Administrator shall:

(a) create a mailing and claim database of all Potential Claimants based upon 

information obtained by the Fund Administrator;
6

(b) run a National Change of Address search to retrieve updated addresses for all 

records in the database, thereby ensuring updated mailing information for 

Potential Claimants;

(c) mail a Claims Packet to each Potential Claimant identified by the Fund 

Administrator;

(d) establish and maintain a website dedicated to the Fair Fund. The Fair Fund’s 

website, located at www.FifthStreetFairFund.com,will make available a copy of 

the Claims Packet, the approved Plan, provide information regarding the claims 

process and eligibility requirements for participation in the Fair Fund in the 

form of frequently asked questions, and provide such other information that the 

Fund Administrator believes will be beneficial to Potential Claimants; 

(e) provide a copy of the approved Plan and Claims Packet to the Commission staff 

and request that the Commission staff establish a link to the Fair Fund’s website 

on the Commission webpage dedicated to this administrative proceeding, 

located at https://www.sec.gov/divisions/enforce/claims/fifth-streetmanagement.htm;

(f) establish and maintain a traditional mailing address and an email mailing 

address, which will be listed on all correspondence from the Fund Administrator 

and posted on the Fair Fund’s website;

(g) establish and maintain a toll-free telephone number for Potential Claimants to 

call to speak to a representative of the Fund Administrator during its regular 

business hours or, outside of such hours, to hear prerecorded information about 

the Fair Fund. The Fund Administrator will advise the Commission staff of the 

toll-free number, post the number on the Fair Fund’s website, and include the

number on all correspondence; and

(h) publish a copy of a Summary Notice, approved by Commission staff, in a 

manner and through media deemed appropriate by the Fund Administrator and 

acceptable to the Commission staff.

14. The Commission staff retains the right to review and approve any material posted 

on the Fair Fund’s website and any scripts used in connection with communications with 

Potential Claimants. 

15. The Fund Administrator will promptly provide a Claims Packet to any Potential 

Claimant upon request made prior to the Claim Deadline.

16. Within thirty (30) days of Commission approval of the Plan, the Fund 

Administrator shall mail Plan Packets to the Fund Administrator’s list of banks, brokers, and 

other nominees, as well as any other institutions identified during the outreach process that may 

have records of investors in the BDC Clients and holdings at relevant times. The Fund 
7

Administrator will request that these entities, to the extent that they were record holders for 

beneficial owners of the Investment: 

(a) Notify the respective beneficial owners of receipt of the Claims Packet within 

fourteen (14) days of receipt of the Claims Packet so that beneficial owners 

may timely file a claim; and/or 

(b) Provide to the Fund Administrator within fourteen (14) days of receipt of the 

Claims Packet a list of last known names and addresses for all beneficial 

owners for whom the record holders purchased the Investment so that the 

Fund Administrator can communicate with them directly. 

17. The Fund Administrator will attempt to locate any Potential Claimant whose 

mailing is returned as undeliverable by the U.S. Postal Service, including an advanced address 

search, if and as feasible, and will document all such efforts. The Fund Administrator shall 

immediately re-mail any returned undeliverable mail for which the U.S. Postal Service has 

provided a forwarding address. Additional efforts by the Fund Administrator to identify new 

addresses for returned undeliverable mail will be conducted as necessary and economically 

reasonable after consultation with the Commission staff. The Fund Administrator, with 

Commission staff approval, may engage a third-party search firm to conduct more rigorous 

searches for persons who mailing is returned as undeliverable; all such costs shall be paid by the 

Fair Fund in accordance with ¶ 60.

18. Once contacted by the Fund Administrator, Potential Claimants have the burden 

of notifying the Fund Administrator of any change in their address and other contact information, 

and of ensuring that such information is properly reflected in the Fund Administrator’s records.

Claims Process 

19. In all materials that refer to the Claim Deadline, the Claim Deadline will be 

clearly identified as within ninety (90) days of mailing of the Claims Packet. To avoid being 

barred from asserting a claim, each Potential Claimant must submit to the Fund Administrator a 

properly completed Claim Form that is postmarked or, if not sent by U.S. mail, received on or 

before the Claim Deadline. The burden will be on the Potential Claimant to ensure that their

Claim Form has been timely postmarked or, if not sent by U.S. Mail, received. A Claim Form 

that is postmarked or, if not sent by U.S. Mail, received after the Claim Deadline will not be 

accepted unless the deadline is extended by the Fund Administrator after consultation with the 

Commission staff. Any extension will be published on the Fair Fund’s website. 

20. The burden to prove receipt of the claim by the Fund Administrator will be upon 

the Potential Claimant; therefore Potential Claimants will be instructed to submit their Claim 

Forms in a manner that will enable them to prove timely receipt of the Claim Form by the Fund 

Administrator. 

21. Claim Forms must be properly filled out per the instructions provided by the Fund 

Administrator, and must be accompanied by such documentary evidence as the Fund 
8

Administrator deems necessary or appropriate to substantiate the claim. Without limitation, this 

information may include third-party documentary evidence of purchases and dispositions of the 

Investment, as well as holdings of the Investment, at relevant dates. 

22. All claims and supporting documentation necessary to determine a Potential 

Claimant’s eligibility to receive a distribution from the Fair Fund under the terms of the Plan 

must be supported by a declaration executed by the Potential Claimant under penalty of perjury 

under the laws of the United States. The declaration must be executed by the Potential Claimant, 

unless the Fund Administrator accepts such declaration from someone authorized to act on the 

Potential Claimant’s behalf, whose authority is supported by such documentary evidence as the 

Fund Administrator deems appropriate. 

23. The Fund Administrator will review all claim submissions and determine the 

eligibility of each Potential Claimant to participate in the Fair Fund by reviewing claim data and 

supporting documentation (or lack thereof), verifying the claim, and calculating each Potential 

Claimant’s loss pursuant to the Plan. Each Potential Clamant will have the burden of proof to 

establish the validity and amount of his or her claim, and that they qualify as an Eligible 

Claimant, including the burden to certify that they are not an Excluded Party. The Fund 

Administrator will have the right to request, and the Potential Claimant will have the burden to 

promptly provide to the Fund Administrator, any additional information and/or documentation 

deemed relevant by the Fund Administrator. Any additional information supplied to the Fund 

Administrator must be postmarked or, if not sent by U.S. Mail, received no later than the 

deadline set for responses to a Deficiency Notice. 

24. Potential Claimants will be able to contact the Fund Administrator via the toll-free 

telephone number, an email address, or using traditional mail to request copies of the Claim 

Form, ask questions about how to complete and file the Claim Form, and inquire about their 

claim. 

25. Within sixty (60) days of the Claim Deadline, the Fund Administrator will send a 

Deficiency Notice to each Potential Claimant that submitted a Claim Form whose claim is

deficient. Any Potential Claimant with a deficient claim will have thirty (30) days from the date 

of the Deficiency Notice to cure any deficiencies identified in the Deficiency Notice; any 

submission postmarked or, if not sent by U.S. Mail, received more than thirty (30) days from the 

date of the Deficiency Notice will not be accepted. 

26. Within one hundred fifty (150) days of the Claim Deadline, the Fund 

Administrator will send a Determination Notice to all Potential Claimants who submitted a 

Claim Form. The Fund Administrator will consult with the Commission staff regarding claim 

rejections before the issuance of Determination Notices. Any Potential Claimant seeking 

reconsideration of a denial of claim must send a request for reconsideration (“Request for 

Reconsideration”) to the Fund Administrator in writing within thirty (30) days of the date of the 

Determination Notice. All requests for reconsideration must include the necessary 

documentation to substantiate the basis upon which the Potential Claimant is requesting 

reconsideration of their claim. Any Request for Reconsideration postmarked or, if not sent by 
9

U.S. Mail, received more than thirty (30) days from the date of the Determination Notice will not 

be accepted. 

27. The Fund Administrator may, in its sole discretion, consider Requests for 

Reconsideration presented by Potential Claimants, and will consult Commission staff as 

appropriate. The Determination Notice will constitute the Fund Administrator’s final ruling 

regarding the status of the claim, unless the Potential Claimant is notified in writing that the 

determination has been revised in response to the Request for Reconsideration. Any such notice 

of reconsideration shall be sent by the Fund Administrator within sixty (60) days of the date of 

the Determination Notice. 

28. The Fund Administrator will have the authority, in its sole discretion, to waive 

technical claim deficiencies and approve claims on a case by case basis, or in groups of claims. 

All determinations made by the Fund Administrator in accordance with the Plan will be final and 

not subject to appeal. 

29. The recipient of an Investment as a gift, inheritance, devise, or operation of law 

will participate in the distribution of the Fair Fund to the extent the original purchaser would 

have been eligible under the terms of the Plan. Only one claim may be submitted with regard to 

the same Investment, and in cases where multiple claims are filed by the donor and donee, the 

donee claim will be honored if it is supported by proper documentation.

30. Claims on behalf of a retirement plan covered by Section 3(3) of ERISA, 29 

U.S.C. § 1002(3), which do not include Individual Retirement Accounts, and such plan’s 

participants, are properly made by the administrator, custodian or fiduciary of the plan and not 

by the plan’s participants. The Fund Administrator will distribute any payments on such claims 

directly to the administrator, custodian, or fiduciary of the retirement plan. The custodian or 

fiduciary of the retirement plan will distribute any payments received in a manner consistent with 

its fiduciary duties and the governing account or plan provisions. 

Distribution Methodology

31. This methodology is designed to compensate Eligible Claimants for the 

Respondent’s misallocation of expenses during the Investment Period. The amount to be 

distributed to each Eligible Claimant will be determined as described in the following 

paragraphs. In the view of the Fund Administrator, this methodology constitutes a fair and 

reasonable allocation of the Net Fair Fund. 

32. For each of FSC and FSFR, the Fund Administrator will determine, by calendar 

quarter during the Investment Period:

(a) the total amount of misallocated expenses plus prejudgment interest 

attributable to that quarter (“Quarterly Loss”); and

(b) the per share allocation of the Quarterly Loss as the Quarterly Loss divided 

by shares outstanding at the end of the quarter (“Per Share Allocation”).
10

33. For each Potential Claimant, the Fund Administrator will determine, for each of 

FSC and FSCR:

(a) the number of shares held at the end of each calendar quarter during the 

Investment Period (“Potential Claimant’s Quarterly Holding”); and 

(b) the Potential Claimant’s “Quarterly Recognized Loss” as the product of the 

Potential Claimant’s Quarterly Holding and the Per Share Allocation.

34. For each Potential Claimant, the Fund Administrator will calculate the Potential 

Claimant’s “Eligible Loss Amount” as the sum of the Potential Claimant’s Quarterly Recognized 

Losses in FSC and FSFR during the Investment Period.

35. If the Net Fair Fund has sufficient funds, and subject to ¶¶ 36-37, each Eligible 

Claimant will receive a Distribution Payment equal to the amount of their Eligible Loss Amount. 

If the Net Fair Fund is not sufficient to fully pay the Eligible Loss Amount for all Eligible 

Claimants, then each Eligible Claimant will receive a Distribution Payment that their Eligible 

Loss Amount bears in proportion to the sum of Eligible Loss Amounts of all Eligible Claimants. 

36. If the Net Fair Fund has funds in excess of that necessary to pay each Eligible 

Claimant a Distribution Payment equal to the amount of their Eligible Loss Amount, the Fund 

Administrator, in consultation with the Commission staff, may include reasonable interest.

4

37. If a Potential Claimant’s Distribution Payment is less than the Minimum 

Distribution Amount, the Potential Claimant will be determined to be ineligible and will not 

receive a Distribution Payment, and the calculated Distribution Payment will remain in the Net 

Fair Fund for distribution in accordance with the Plan.

 

4

“Reasonable Interest” will be calculated using the short-term Applicable Federal Rate, compounded quarterly from 

the end of each calendar year in which excess fees were paid through the approximate date of the disbursement of 

the Fair Fund.
11

Establishment of Escrow Account

38. The Fund Administrator will establish an escrow account (the “Escrow Account”) 

at a United States commercial bank (the “Bank”) that is acceptable to the Commission staff. The 

Escrow Account shall be established pursuant to an escrow agreement (the “Escrow 

Agreement”) to be provided by the Commission staff, in the name of and bearing the Employer 

Identification Number (“EIN”) of the QSF as described above. The Fund Administrator shall 

also establish with the Bank a separate deposit account (the “Deposit Account”) (e.g., controlled 

distribution account, managed distribution account, linked checking account or investment 

account) for the purpose of funding distribution payments to be distributed to Eligible Claimants 

by the Fund Administrator pursuant to the Plan. The name of such account shall be in the 

following form: Fifth Street Fair Fund (EIN XX-XXXXXXX), as custodian for the benefit of 

investors allocated a distribution pursuant to the Plan in Fifth Street Management, LLC, Admin.

Proc. File No. 3-18909. 

39. During the term of the Escrow Agreement, if invested, the Escrow Account shall 

be invested and reinvested in short-term Treasury securities backed by the full-faith and credit of 

the United States Government or an agency thereof, of a type and term necessary to meet the 

cash liquidity requirements for payments to Eligible Claimants, and tax obligations, including 

investment or reinvestment in a bank account insured by the Federal Deposit Insurance 

Corporation (“FDIC”) up to the guaranteed FDIC limit, or in money market mutual funds 

registered under the Investment Company Act of 1940 that invest 100% of their assets in direct 

obligations of the United States Government. All interest earned will accrue for the benefit of 

the Fair Fund.

40. Upon transfer from the BFS, all funds shall remain in the Escrow Account, 

separate from bank assets, pursuant to the Escrow Agreement until needed to satisfy a presented 

check. All checks presented for payment or electronic transfer will be subject to “positive pay” 

controls before they are honored by the Bank. The “positive pay” system provides protection 

against fraud arising from counterfeit or altered checks. The “positive pay” system will require, 

at a minimum, confirmation by the Bank that all checks presented for payment match the 

identifiers and amounts on the payee list prior to honoring such checks. In each instance, funds 

will be transferred from the Escrow Account to the Deposit Account on the Bank’s confirmation 

that a presented check matches the relevant “positive pay” criteria. 

41. The Fund Administrator shall deposit or invest the Fair Fund monies in the 

Escrow and Deposit Accounts so as to result in the maximum reasonable net return, taking into 

account the safety of such deposits or investments. In consultation with the Commission staff, 

the Fund Administrator shall work with the Bank on an ongoing basis to determine an allocation 

of the Net Fair Fund monies between the Escrow and Deposit Accounts.

42. The Fund Administrator shall provide duplicate bank and/or investment 

statements on any accounts established by the Fund Administrator to the Tax Administrator on a 

monthly basis and shall assist the Tax Administrator in obtaining mid-cycle statements, as 

necessary. 
12

Distribution of the Fair Fund

43. The Fund Administrator, in consultation with Commission staff and the Tax 

Administrator, shall determine the Net Fair Fund by retaining a prudent reserve to pay any 

Administrative Costs payable in connection with the Fair Fund, as well as a reasonable 

contingency for potential unforeseen issues. 

44. The Net Fair Fund will be distributed to Eligible Claimants as provided under the 

terms of the Plan. 

45. The Fund Administrator shall distribute the Net Fair Fund to all Eligible 

Claimants only after all timely submitted Claim Forms have been processed and all Potential 

Claimants whose claims have been rejected or disallowed, in whole or in part, have been notified 

and provided the opportunity to contest or cure pursuant to the procedures set forth above, and 

after a Commission Order to Disburse has issued.

46. Within ninety (90) days of sending the Determination Notice described in ¶ 26,

the Fund Administrator shall prepare a final payment file (“Payment File”) that includes the 

names, addresses, Eligible Loss Amount, and Distribution Payment of Eligible Claimants. 

47. The Fund Administrator will also provide a “Reasonable Assurances Letter” as to 

the completeness and accuracy of the Payment File. 

48. Upon receipt and review of the Payment File and Reasonable Assurances Letter, 

the Commission staff will obtain authorization from the Commission to disburse the Fair Fund 

consistent with Rule 1101(b)(6) of the Rules, 17 C.F.R. § 201.1101(b)(6). Upon issuance of an 

order to disburse by the Commission, Commission staff will direct the transfer of funds from the 

Fair Fund to the Escrow Account. The Fund Administrator shall then use its best efforts to 

commence mailing checks or effect wire transfers within twenty-one (21) business days of the 

release of the funds into the Escrow Account (the “Initial Issue”). All efforts will be coordinated 

to limit the time between the Escrow Account’s receipt of the funds and the issuance of 

Distribution Payments. 

49. All payments will be issued by the Fund Administrator from the Deposit Account. 

Subject to ¶ 53, all checks will bear a stale date of one hundred twenty (120) days from the date 

of issuance. Checks that are not negotiated by the stale date will be voided, and the Bank will be 

instructed to stop payment on those checks. Except as otherwise provided in the Plan, an 

Eligible Claimant’s claim shall be extinguished if they fail to negotiate their check by the stale 

date. All such funds will remain in the Net Fair Fund. 

50. All Distribution Payments shall be preceded or accompanied by a communication

that will include, as appropriate: (a) a statement characterizing the distribution; (b) a statement 

from the Tax Administrator regarding the tax consequences of Distribution Payments and

informing Eligible Claimants that the tax treatment of the distribution is the responsibility of 

each recipient and that the recipient should consult their tax advisor for advice regarding the tax 

treatment of the distribution; (c) a statement that checks will be void after one hundred twenty 
13

(120) days; and (d) providing contact information for the Fund Administrator, to be used in the 

event of any questions regarding the distribution. All such communications shall be submitted to 

the Commission staff and the Tax Administrator for review and approval. Distribution Payment

checks, on their face or the accompanying mailbag, shall clearly indicate that the money is being 

distributed from a Fair Fund established by the Commission for the benefit of investors for harm 

as a result of securities law violations. 

51. Electronic or wire transfers may be utilized at the discretion of the Fund 

Administrator for good cause shown, including without limitation, to make Distribution 

Payments to Eligible Claimants who are unable to receive payment by check, or to transfer 

approved Distribution Payments on behalf of twenty (20) or more Eligible Claimants. Wire 

transfers will be initiated by the Fund Administrator using a two-party check and balance system, 

whereby completion of a wire transfer will require authorization by two members of the Fund 

Administrator’s senior staff. 

Post Distribution: Returned and Uncashed Checks

52. The Fund Administrator will perform an advanced address search for checks that 

are returned as undeliverable, using the resources described above, ¶ 17, to the extent such search 

is feasible, and will reissue such checks so long as the new address is received, and the check 

reissued, within one hundred twenty (120) days of the Initial Issue. Furthermore, the Fund 

Administrator will take additional steps, as necessary, to follow-up on the status of uncashed 

checks at the request of Commission staff and will reissue such checks, if necessary, within one 

hundred twenty (120) days of the Initial Issue.

53. The Fund Administrator shall reissue checks to Eligible Claimants, upon the 

receipt of a valid, written request from the Eligible Claimant. Such reissued checks will be void 

after sixty (60) days from the issuance and no checks will be reissued more than one hundred 

twenty (120) days from the Initial Issue.

54. A residual within the Fair Fund will be established for any amounts remaining 

after all assets have been disbursed. The residual may include, among other things, funds 

reserved for future taxes and for post-distribution contingencies, amounts from Distribution 

Payment checks that have not been cashed, amounts from Distribution Payment checks that were 

not delivered or accepted upon delivery, and tax refunds. If Eligible Claimants have not yet 

received a Distribution Payment equal to the amount of their Eligible Loss Amount plus 

reasonable interest (“Total Loss”) and, in the estimation of the Fund Administrator, an additional 

distribution is feasible, undistributed funds in the residual account after payment of all 

Administrative Costs will be distributed to those Eligible Claimants that negotiated the checks 

issued in the immediately preceding distribution or that received electronic payments, up to the 

their respective Total Loss. If any funds remain in the residual account after completion of all 

distributions and the payment of all Administrative Costs under the Plan, the Fund Administrator 

shall remit the residual to the Commission for transfer to Treasury after the Commission 

approves the final fund accounting. 
14

Accountings and Termination of the Fair Fund

55. Once the Fair Fund has been transferred from the BFS to the Bank, the Fund 

Administrator will provide an accounting to the Commission staff during the first ten (10) days 

after the end of each quarter in a format acceptable to the Commission staff. Each accounting 

shall detail all monies earned or received and all monies spent in connection with the 

administration of the Plan during the reporting period. 

56. Upon completion of all distributions pursuant to the Plan, the Fund Administrator 

shall make arrangements for the payment of taxes and administration fees and expenses, transfer 

all remaining funds to the Commission, and submit to the Commission staff a final fund 

accounting for Commission approval on the standardized accounting form provided by the 

Commission staff. The Fund Administrator also shall submit a final report to the Commission 

staff summarizing the distribution, including disbursed amounts, returned or unnegotiated 

payments, outreach efforts and costs, final distribution statistics including statistics regarding 

distributions to individuals and entities, and such other information requested by the Commission 

staff.

57. The Fund Administrator will shut down the toll-free number, website, and any 

electronic mail address established specifically for the administration of the Fair Fund upon the 

transfer of any remaining monies to the Commission.

58. The Fair Fund shall be eligible for termination, and the Fund Administrator shall 

be discharged, after all of the following have occurred: (a) a final fund accounting, in a

Commission approved standard accounting format provided by the Commission staff, has been 

submitted by the Fund Administrator and approved by the Commission; (b) all taxes, fees and 

expenses have been paid; and (c) any amount remaining in the Fair Fund has been received by 

the Commission for transfer to Treasury. The Commission staff shall seek an order from the 

Commission, as appropriate, approving the final accounting, terminating the Fair Fund, 

canceling the Fund Administrator’s bond, discharging the Fund Administrator, and transferring 

any amounts remaining in the Fair Fund, and any amounts returned to the Fair Fund in the future, 

to Treasury.

59. Once the Fair Fund has been terminated and remaining monies, if any, are 

transferred to the United States Treasury, no further claims will be allowed and no additional 

payments will be made whatsoever.

Miscellaneous

60. All Administrative Costs shall be paid by the Fair Fund, first from the interest 

earned, and if the interest is not sufficient, from the corpus of the Fair Fund.

61. When administering the Plan, the Fund Administrator, and/or each of its 

designees, agents and assistants, shall be entitled to rely on all outstanding rules of law; and any 

orders issued by the Commission, the secretary by delegated authority, or an Administrative Law 

Judge. 
15

62. The Fund Administrator will take reasonable and appropriate steps to distribute 

the Net Fair Fund according to the Plan. The Fund Administrator will inform Commission staff 

of any changes needed to this Plan. Upon approval by the Commission staff, the Fund 

Administrator may implement immaterial changes to this Plan to effectuate its general purposes. 

If a change is deemed to be material by Commission staff, Commission approval is required to 

amend the Plan prior to implementation of the change. For good cause shown, the Fund 

Administrator, upon consultation with the Commission staff, may extend any of the procedural 

deadlines herein.

63. The Fund Administrator will maintain all documents, including documents in any 

media, for six (6) years after approval of the final fund accounting. Pursuant to Commission 

staff direction, the Fund Administrator will either turn over to the Commission or destroy all 

documents six (6) years after the approval of the final fund accounting. 

Notice and Comment Period

64. The Notice of the Proposed Plan of Distribution and Opportunity for Comment 

(“Notice”) will be published on the Commission’s website at 

http://www.sec.gov/litigation/fairfundlist.htm. Any person wishing to comment on the Plan must 

do so in writing by submitting their comments to the Commission within thirty (30) days of the 

date of the Notice: (a) to the Office of the Secretary, United States Securities and Exchange 

Commission, 100 F Street, NE, Washington, DC 20549-1090; (b) by using the Commission’s 

Internet comment form (http://www.sec.gov/litigation/admin.shtml); or (c) by sending an email 

to rule-comments@sec.gov. Comments submitted by email or via the Commission’s website 

should include “Administrative Proceeding File Number 3-18909” in the subject line. 

Comments received will be publicly available. Persons should only submit comments that they 

wish to make publicly available.