The Securities and Exchange Commission has barred Barry C. Ziskin of Top Fund Management [profile] and Ziskin Asset Management from the securities industry, accusing him of failing to follow the investment objectives outlined in his fund's prospectus.

In the cease-and-desist order released today, the SEC alleges that the Mesa, Arizona-based Ziskin and Top Fund Management misled investors about its trading of options in its Z Seven Fund during 2009 and 2010. The SEC order states that while the fund's prospectus claimed that it would use options only for hedging purposes, Ziskin's options trading "went well beyond hedging and amounted to speculation."

The Z Seven Fund held $5.3 million as of October 2009, and according to the SEC's press release, it suffered $3.7 million in losses related to options trading over the next fifteen months. The board liquidated the fund in December 2010 and Ziskin de-registered Top Fund Management in 2011.

MFWire's attempts to contact Ziskin were unsuccessful. His LinkedIn profile states that he has been operating Ziskin Asset Management since 1975.

The Zero Seven Fund was registered as a closed-end fund in 1983, and began operating as an open-end fund in 2007, with the stated objective of seeking "long-term capital appreciation."

The order bars Ziskin from working in the securities industry, but does not impose a fine due to "his inability to pay a civil penalty."

The SEC's press release announcing Ziskin's penalty is below.

SEC BANS ARIZONA-BASED INVESTMENT ADVISER FROM SECURITIES INDUSTRY FOR FRAUDULENT ACTIONS IN MUTUAL FUND COLLAPSE

    Washington, D.C., Dec. 21, 2012 – The Securities and Exchange Commission today barred an Arizona-based mutual fund manager from the securities industry for failing to follow the investment objectives of a stock mutual fund managed by his firm, leading to the fund’s collapse.  

An SEC investigation found that the prospectus of Z Seven Fund (ZSF) stated that it sought long-term capital appreciation and restricted the use of options.  Nonetheless, beginning in September 2009, Barry C. Ziskin and his firm Top Fund Management (TFM) invested ZSF in put options for speculative purposes contrary to the fund’s stated investment policy.  The losses from options trading and the ensuing investor redemptions ultimately resulted in ZSF’s liquidation in December 2010.   

“ZSF investors expected the fund to pursue capital appreciation by buying stocks, but TFM and Ziskin took the fund down a very different and disastrous path,” said Bruce Karpati, Chief of the SEC Enforcement Division’s Asset Management Unit.  “Mutual fund advisers who deviate from their fund’s investment strategy and keep investors in the dark will be held accountable for their fraudulent actions.”  

According to the SEC’s order instituting settled administrative proceedings against TFM and Ziskin, disclosures in ZSF’s prospectuses and statements of additional information provided that the fund could trade options only to hedge its portfolio.  However, because TFM and Ziskin traded put options in such large amounts relative to the size of ZSF’s equity portfolio, their strategy amounted to speculation.  For example, ZSF’s equity portfolio had a market value of $1,835,607 on July 6, 2010, but ZSF held enough option contracts to protect a portfolio worth $32,858,000 (17.9 times the value of the equity portfolio).  ZSF’s options trading also caused the fund’s performance to plummet.  As of October 2009, ZSF had net assets of $5.3 million, but over the next 15 months the fund suffered $3.7 million in losses from options.  TFM and Ziskin misled ZSF investors by misrepresenting in a shareholder report that options trading was for hedging purposes.     

The SEC’s order finds that TFM and Ziskin willfully violated the antifraud provisions of the Securities Act of 1933, the Securities Exchange Act of 1934, and the Investment Advisers Act of 1940.  The order also finds that TFM and Ziskin violated Section 34(b) of the Investment Company Act of 1940 and caused ZSF to violate Section 13(a)(3) of that act.  Without admitting or denying the SEC’s findings, TFM and Ziskin agreed to cease and desist from committing or causing any violations and any future violations of these provisions.  They also consented to the entry of an SEC order that censures TFM and bars Ziskin from association with any broker, dealer, investment adviser, municipal securities dealer, municipal advisor, transfer agent, or nationally recognized statistical rating organization and prohibits him from serving as an officer, director or employee of a mutual fund.  

The SEC’s investigation was conducted by Payam Danialypour and C. Dabney O’Riordan, who are members of the Asset Management Unit in the SEC’s Los Angeles Regional Office.  The examination of TFM was conducted by Arlana D. Williams and John K. Kreimeyer of the Los Angeles office’s investment adviser/investment company examination program.

 

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