______________________________________ 

 

UNITED STATES OF AMERICA 

Before the 

SECURITIES AND EXCHANGE COMMISSION 

ADMINISTRATIVE PROCEEDING 

File No. 3-12678 

) 

In the Matter of ) 

) 

Haidar Capital Management, LLC, ) 

Haidar Capital Advisors, LLC and ) 

Said N. Haidar, ) 

) 

Respondents. ) 

_______________________________________) 

PROPOSED PLAN OF DISTRIBUTION 

Overview 

1. This Plan of Distribution (“Plan”) proposes a methodology for distributing 

disgorgement, civil penalties, and prejudgment interest paid by Haidar Capital 

Management, LLC, Haidar Capital Advisors, LLC (collectively, “Haidar Advisors”), and 

Said N. Haidar (“Haidar”) (collectively, “Respondents”) in settlement with the Securities 

and Exchange Commission (“SEC” or “Commission”) of administrative proceedings 

involving findings of deceptive market timing of certain mutual funds and annuities 

(“Affected Funds”). On July 6, 2007, Respondents consented to the entry of an order 

instituting public administrative and cease-and-desist proceedings, making findings, 

imposing a cease-and-desist order, and imposing remedial sanctions pursuant to Section 

8A of the Securities Act of 1933, Sections 203(e) and (f) of the Investment Advisers Act 

of 1940, and Sections 9(b) and (d) of the Investment Company Act of 1940 (“Order”) 

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(Securities Act Rel. No. 8820).1 The Order found, among other things, that between 

April 2001 and September 2003, Haidar Advisors engaged in an illegal market timing 

scheme. 

2. The Order required that Respondents pay $4,580,000 in disgorgement, civil 

penalties, and prejudgment interest. The Order also established a Fair Fund under 

Section 308(a) of the Sarbanes-Oxley Act of 2002, 15 U.S.C. § 7246, and 17 C.F.R. § 

201.1100 et seq. promulgated thereunder (Order, Paragraph IV.D.1.). The Order further 

required that the Respondents retain the services of an “independent distribution 

consultant not unacceptable to the staff of the Commission” to develop a plan “for the 

distribution of the total disgorgement and penalty ordered in” the Order “and any interest 

or earnings thereon, according to a methodology” acceptable to the staff of the 

Commission. The Order also requires that the Respondents “cooperate fully with the 

Independent Distribution Consultant, including [by] providing access to their files, books, 

records, and personnel as reasonably requested for the review.” Respondents agreed to, 

and have paid, up to $50,000 of the compensation and expenses of the Independent 

Distribution Consultant (“IDC”). Thereafter, the IDC’s compensation or expenses shall 

be paid first from the interest earned on the funds, and if the interest is not sufficient, then 

from the corpus. 

3. In accordance with the Order, the Respondents have retained Professor Gordon 

Alexander, a professor of finance at the University of Minnesota and a former SEC 

economist as the IDC.2

 This submission constitutes the Plan required by the Order. The 

1 See Order Instituting Proceedings at www.sec.gov/litigation/admin/2007/33-8820.pdf. 2

 Professor Alexander has received assistance from staff at Securities Litigation and Consulting Group,
 

Inc., an economics consulting firm based in Fairfax, Virginia. All work in this matter has been done under 

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Plan is subject to approval by the Commission, and the Commission retains jurisdiction 

over the implementation of the Plan. 

Administration of the Distribution Plan 

4. Purpose and Background. The Plan was developed pursuant to the Order and the 

SEC Rules on Fair Fund and Disgorgement Plans, 17 C.F.R. § 201.1100, et seq. 

(“Rules”). 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 assets of the Fair Fund (that were paid by Respondents 

on August 3, 2007) are subject to the continuing jurisdiction and control of the 

Commission, and the Commission shall retain control of the assets of the Fair Fund, 

which is currently deposited at the United States Treasury Bureau of Public Debt for 

investment in government obligations. 

5. Fund Administrator. Rule 1105(a) provides that the Commission “shall have the 

authority to appoint any person . . . as administrator of a plan of disgorgement of a Fair 

Fund and to delegate to that person responsibility for administering the plan.” Rule 

1105(a) also provides that an administrator may be removed at any time by order of the 

Commission. Respondents have proposed Rust Consulting, Inc. (“Rust”) to act as the 

administrator (“Fund Administrator”) for the Plan. Rust has extensive experience in 

distributing SEC Fair Funds.3

 The staff has no objection to the selection of Rust as Fund 

Administrator. 

Professor Alexander’s direction. In accordance with the Order, the Respondents have paid $50,000 for the 

expenses of the IDC, Professor Alexander. 

3 See, for example, In the Matter of Bank of America Capital Management, et al., Order Approving the 

Distribution Plan, Administrative Proceeding File No. 3-11818, available at 

http://sec.gov/litigation/admin/2007/34-57048.pdf. 

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6. Bond. Rule 1105(c) requires that the Fund Administrator “obtain a bond in the 

manner prescribed in 11 U.S.C. 322, in an amount to be approved by the Commission,” 

but allows the Commission to “waive posting of a bond for good cause shown.” The 

disbursements in this matter will be made by Treasury’s Financial Management Services 

(“FMS”) directly to the Affected Funds, with no handling of money by the Fund 

Administrator. The payees, and the relative amounts to be paid by FMS to each, will be 

reviewed and approved by the Commission prior to the disbursements. In summary, the 

Fund Administrator will not have discretion regarding payment amounts made from the 

Fair Fund. Accordingly, waiver of the bond for the Fund Administrator is proposed for 

this Distribution Plan. 

Distribution Plan and Procedures 

7. Specification of Eligible Fair Fund Recipients. Rule 1101(b)(2) provides that a 

plan shall include specification “of categories of persons potentially eligible to receive 

proceeds of the fund.” This first requires a decision of whether the distribution should 

occur (a) at the fund level, meaning that the Fair Funds would be contributed to the 

Affected Funds in which the Respondents’ conduct caused dilution in share value, with 

the distribution resulting in an increase in the net asset value of those collective asset 

vehicles; or (b) at the individual investor level, meaning that the distribution process 

would attempt to “look through” the ownership structure at the mutual fund level to 

identify the individual fund shareholders whose shares were diluted in value as a 

consequence of the Respondents’ transactions. 

8. Fund Level. A fund level distribution is the appropriate mechanism for this 

distribution. This conclusion is based on the observations that, among other factors: 

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a. The amounts likely to be paid to the large majority of individual fund 

shareholders would be so small as to be de minimis;

4

 and 

b. Implementing an individual level distribution under the circumstances here 

would result in significant expense and delay. Because any costs exceeding the 

$50,000 contributed by the Respondents to prepare and fully implement the 

Distribution Plan are to be paid out of the Fair Fund, it is highly probable that an 

individual level distribution would significantly reduce the size of the Fair 

Fund. A fund level distribution would, however, avoid the costs of collecting 

large amounts of data from various sources and in different formats regarding 

daily purchases and redemptions of funds by individuals. In addition, complex 

and time-consuming implementation issues would be present in an individual 

level distribution such as this where the trading took place at hundreds of funds 

in numerous different fund complexes. The Respondents and the Fund 

Administrator in the instant proceedings lack the ability to compel disclosure by 

the various funds (not to mention the various brokers, advisors and other 

intermediaries) of the daily purchases and redemptions of funds by individuals 

that would be essential to any determination of which shareholders of the funds 

held fund shares, and how many shares they held, and how many shares were 

outstanding, on the various days on which the Respondents engaged in 

purchases and redemptions of shares of those same funds. 

See, for example, In the Matter of Millennium Partners, et al., Proposed Plan of Distribution, 

Administrative Proceeding File No. 3-12116 and 3-11292, available at 

http://www.sec.gov/litigation/admin/2007/34-55841-pdp.pdf and Order Approving Distribution Plan, 

Appointing an Administrator, and Waiving Bond, available at 

http://www.sec.gov/litigation/admin/2007/34-56196.pdf. 

5 

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9. Methodology for Determining Distributions. The Fair Fund will be allocated in 

three steps. First, the dilution suffered by each Affected Fund is estimated using the 

next-day NAV method. This method calculates the dilution to a fund as the sum of the 

profits earned by market timers on purchases plus the losses avoided on sales. This 

method assumes that the timer inflows were fully invested at the end of the day after 

being received and that the investments were fully liquidated at the end of the day after 

being withdrawn. 

9(a). The next-day NAV method has been shown to be a valid method of estimating 

dilution from market timing5

 and has been used previously for fund-level allocations in 

previous distributions.6 Based upon the specific facts in this matter, the IDC believes that 

the next-day NAV method is a fair and reasonable approach. The next-day NAV method 

was applied to a database of trades produced by the Respondents. The Respondents 

represented that these are the trades referred to in the Order. After applying the next-day 

NAV method to the trades, 577 mutual funds that were in the database of trades produced 

by the Respondents were found to have experienced either positive or negative dilution. 

9(b). Of the 577 funds for which the IDC had data, 169 were to experience negative 

dilution from the activities of the market timers, and 408 were to experience positive 

dilution. There were no other funds in the transaction database that were affected by the 

market timing. The second and third steps use the estimates of positive dilution 

experienced by 408 of the 577 mutual funds (the Affected Funds) from the first step to 

5

 See Greene, J. and C.W. Hodges, 2002. “The Dilution Impact of Daily Fund Flows on Open-End Mutual 

Funds,” Journal of Financial Economics 65, 131-158, and Greene, J. and C. S. Ciccotello, 2006. “Mutual 

Fund Dilution from Market Timing Trades,” Journal of Investment Management 4, 42-66. 6

 See, for example, In re Millennium; see infra fn. 4, In the Matter of Veras Capital Master Fund, et al., 

Proposed Plan of Distribution, Administrative Proceeding File No. 3-12133, available at 

http://www.sec.gov/litigation/admin/2006/34-54299-pdp.pdf, and Order Directing Disbursement of Fair 

Fund, available at http://sec.gov/litigation/admin/2007/34-55363.pdf. 

6 
 

allocate the Fair Fund. Therefore, in the second step, the Fair Fund is allocated pro rata 

to all funds with positive dilution since shareholders in the 169 funds with negative 

dilution were not harmed by the trades of the market timers. 

9(c). In the second step, the amount in the Fair Fund, less reserve allowances for the 

IDC and Fund Administrator (“Reserve Allowances”) and allowances for the Tax 

Administrator and taxes (“Tax Allowances”), shall be allocated pro rata to all funds with 

positive dilution based on the estimates obtained in the first step. This reserve calculation 

shall be performed as close as possible to the expected date of distribution. The Reserve 

Allowances and the Tax Allowances calculations shall be provided by the IDC, after 

consultation with the Fund Administrator and Tax Administrator, to the staff for approval 

by the Commission. The Tax Allowances shall be adequate to cover any anticipated tax 

liability of the Fair Fund and related costs of tax compliance. 

9(d). Consistent with similar distribution plans, this Distribution Plan sets a de 

minimis amount of $1,000. This avoids distributing money to funds in cases where the 

cost of the distribution exceeds the amount distributed. Accordingly, the third step reallocates the Fair Fund (less the allowances described above) pro rata based on dilution 

to all Affected Funds that experienced positive dilution and which had an allocation of at 

least $1,000 in step two. Of the 408 mutual funds with positive dilution, 257 funds 

(“Eligible Funds”) were found to have dilution of at least $1,000. 

9(e). The IDC deems this method an acceptable method for allocating the Fair Fund 

on the specific facts of this case.7

 Each Eligible Fund's share of the Fair Fund (“Fund 

Distribution Amount”) is intended to result in a payment that restores the impaired value 

of the Eligible Fund. Some of this impaired value is susceptible to calculation, while 

7 See the distribution plan cited in footnote 4 for the IDC’s basis for using this de minimis amount. 

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some of this impaired value is not. The method of calculation is intended by the 

Commission to fairly estimate the impaired value that each Eligible Fund has suffered 

and make a payment in that amount.8 

10. Procedures for Locating and Notifying Responsible Persons for the Eligible 

Funds. Rule 1101(b)(3) provides that a plan shall include procedures “for providing 

notice to [potential claimants--in this case, the Eligible Funds] of the existence of the 

fund and their potential eligibility to receive proceeds of the fund.” The Fund 

Administrator will identify the entity with fiduciary responsibility for each Eligible Fund 

or its successor entity. Within 30 days of the approval of the Distribution Plan, the Fund 

Administrator will mail or send by other reasonable means each such fiduciary a notice 

regarding the Commission's approval of the Distribution Plan and the procedure for 

distribution. The Fund Administrator will request from each fiduciary information 

sufficient to accomplish the distribution, including the Tax Identification Number for the 

Eligible Fund, payment address, contact information and/or wiring instructions. 

Furthermore, each Eligible Fund will: (1) be notified that the Fund Distribution Amount 

is designated solely for the Eligible Fund and is not to be used for administrative or 

management fees, and (2) be required to certify in advance that the money will be 

deposited into the Eligible Fund as intended (“Certification”). 

10(a). If an Eligible Fund does not respond, including providing the Certification, 

within twenty-one days from the mailing date of the notice, the Fund Administrator shall 

send a second notice by mail. For those Eligible Funds entitled to a Fund Distribution 

8 An example of a fund level distribution is the Proposed Plan of Distribution in In the Matter of Veras 

Capital Master Fund, et al., Administrative Proceeding File No. 3-12133, available at 

http://www.sec.gov/litigation/admin/2006/34-54299-pdp.pdf. See also the distribution plan cited in 

footnote 4. 

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Amount of $50,000 or greater that do not respond to the second notice within twenty-one 

days of the notice’s mailing date, the Fund Administrator shall make three attempts to 

contact the Eligible Fund (or its successor) telephonically within the next seven days. 

The Fund Administrator will keep records of each contact attempt for each Eligible Fund 

and the response received, if any. These records will be provided to Commission staff at 

least 30 days before the scheduled distribution is to be made. 

11. No Claims-Made Process. This Fair Fund is not being distributed according to a 

claims-made process, so the procedures for providing notice and for making and 

approving claims are not applicable. 

12. Procedures for the Receipt of Additional Funds. Rule 110l(b)(l) provides, 

among other things, that a plan shall include procedures “for the receipt of additional 

funds.” The Fair Fund has been deposited at the Bureau of Public Debt for investment in 

government obligations. Other than interest from these investments, it is not anticipated 

that the Fair Fund will receive additional funds. 

13. Checks or Electronic Transfers. The Fund Administrator may elect to make 

payment of the Fund Distribution Amount to an Eligible Fund by check or electronic 

transfer. Distribution checks or electronic transfers, on their face, or in the accompanying 

mailing will clearly indicate that the money is being distributed from an SEC Fair Fund. 

14. Validation and Approval of Disbursement of the Fair Fund. The Fair Fund 

disbursement to the Eligible Funds will be implemented through FMS, which will 

electronically transfer funds through the Automated Clearing House (“ACH”) or mail a 

check to each payee. The Fair Fund disbursements will be made as follows: 

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a. Staff will provide the Fund Administrator with appropriate proprietary software 

for compiling the information necessary to be submitted to FMS. 

b.	 Approximately 30 days prior to the distribution date, the Fund Administrator 

will compile the information available into an electronic file in the Agency 

Input format and submit the file to the SEC Office of Financial Management to 

ensure the file passes all system edits. Any errors or omissions of data will be 

communicated back to the Fund Administrator promptly. The Fund 

Administrator will submit the final electronic file to the staff. However, the 

initial distribution shall be made no later than 150 days following approval of 

the Distribution Plan. Before submitting a validated payment file to the staff, 

the Fund Administrator will coordinate with the Tax Administrator to determine 

whether it is necessary to solicit an IRS Form W-9 (resident entities) or W-8 

(non-resident entities) from each Eligible Fund. 

c.	 The Fund Administrator will validate the list of Eligible Funds and respective 

Fund Distribution Amounts in the electronic file to the staff. The validation will 

state that the list was complied in accordance with the Distribution Plan and 

provides all information necessary to make a disbursement to each Eligible 

Fund. Unless otherwise directed by the Commission, the staff will obtain 

authorization from the Commission to disburse pursuant to Rule 1101(b)(6). 

d.	 When the electronic file and validation are approved and the order to disburse is 

entered, the Commission, through its Office of Financial Management, will 

transmit the electronic file to FMS for the transfer of funds pursuant to the 

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following FMS procedures. Within 48 hours of receipt by FMS, funds will be 

transferred by the ACH or checks will be mailed. 

e.	 The Fund Administrator will repeat this process as many times as necessary to 

complete distribution of the Fair Fund. 

f.	 The Fund Administrator also is responsible for accounting for all payments. In 

the event that any distribution is in the form of a paper check in lieu of an 

electronic transfer, each check will state on its face that it is valid for six 

months. After seven months from the date on the distribution check, FMS shall 

notify the Commission, which, in turn, will notify the Fund Administrator of all 

uncashed checks. FMS will credit the SEC account for the Distribution Fund 

for the amount of all uncashed checks. 

15. Returned Checks Electronic Transfer Procedures. FMS will notify the 

Commission, which, in turn will notify the Fund Administrator of any returned items due 

to non-delivery, insufficient addresses, or other deficiencies. The Fund Administrator is 

responsible for researching and reconciling all errors that result in non-delivery and shall 

submit a supplemental electronic file for payment of the returned items. 

16. Termination of the Fair Fund. The Fair Fund shall be eligible for termination, 

and the Fund Administrator shall be discharged, after all of the following have occurred: 

(1) a final accounting, in an SEC standard accounting format provided by the staff, has 

been submitted by the Fund Administrator and approved by the Commission, (2) all 

taxes, fees, and expenses have been paid, and (3) any amount remaining in the Fair Fund 

has been received by the Commission. When the Commission has approved the final 

accounting, the staff shall arrange for the transfer of any amount remaining in the Fair 

11 
 

Fund to the U.S. Treasury, and shall seek an order from the Commission to approve the 

termination of the Fair Fund and discharge of the IDC and Fund Administrator. 

17. Taxes. The Commission has appointed Damasco & Associates as the Tax 

Administrator (“Tax Administrator”) of the Fair Fund (Exchange Act Rel. No. 56909, 

Dec. 5, 2007). The IDC, Fund Administrator, and Respondents will cooperate with the 

Tax Administrator in providing information necessary to accomplish income tax 

compliance, ruling and advice work assigned to the Tax Administrator by the 

Commission. The Tax Administrator shall be compensated from the Tax Allowance. 

The Fund Administrator and Bureau of Public Debt shall be authorized to provide 

account information to the Tax Administrator. 

18. Amendment. The IDC and Fund Administrator shall take reasonable and 

appropriate steps to distribute the Fair Fund according to the Plan. The IDC will inform 

the staff of any changes needed in the Plan. Upon agreement with the staff, the IDC and 

Fund Administrator may implement immaterial changes to the Plan to effectuate its 

general purposes. If a change is deemed to be material by the staff, Commission 

approval is required prior to implementation by amending the Plan, which may be done 

upon the motion of any party or the Fund Administrator or upon the Commission’s own 

motion. 

19. Procedural Deadlines. For good cause shown, the staff may extend any of the 

procedural deadlines set forth in this Plan. 

20. Notice of Proposed Fair Fund Distribution Plan. In accordance with Rule 1103, 

notice of this Distribution Plan shall be published in the SEC Docket, on the Commission 

website, and on the Respondents’ website. Any person or entity wishing to comment on 

12 
the Distribution Plan must do so in writing by submitting their comments to the 

Commission within thirty days of the date of the notice: (a) by sending a letter to the 

Office of the Secretary, United States Securities and Exchange Commission, 100 F 

Street, N.E., 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 e-mail 

to rule-comments@sec.gov. Please include “Administrative Proceeding File Number 3-

12678” in the subject line. Comments received will be made publicly available. 

Commenters should submit only information that they wish to make publicly available. 

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