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Court Approves Revised Investor Education Funding Plan

A U.S. district judge for the Southern District of New York last week approved the SEC's revised plan to fund an investor education initiative with money allocated in the research analyst global settlement. The court considered objections to the revised proposal, but granted the SEC's application to dissolve the investor education entity that was established by the court's March 25, 2004 order and distribute the funds to the NASD Investor Education Foundation. The court will retain jurisdiction for the purpose of ensuring compliance with the terms of the order, the final judgments and other orders in the related actions.

The court ordered the investor education entity established by its March 25, 2004 order to wind down its affairs and to terminate its corporate existence. The entity's board members and officers' resignations will be effective upon the receipt by the entity of a certificate of dissolution by the state of Delaware .

The nonprofit NASD Investor Education Foundation will distribute the $55 million that was set aside for investor education by the federal regulators in settlements with 12 investment banks to resolve analyst conflict of interest charges. The NASD Foundation will use the funds for new or expanded education initiatives. The global settlement funds will not replace current NASD funding of the Foundation. The court advised that the investor education account is not to be used as a permanent endowment. The funds should be distributed in an expeditious manner, according to the court, and no later than 10 years from the date of the order unless the deadline is modified with the court's approval.

The NASD Foundation will provide the SEC with quarterly reports on the use of the funds, including any approved and unapproved grant applications. The Foundation will also submit an annual report that provides a strategic plan for the upcoming year. The SEC will file the quarterly and annual reports with the court.

The NASD's Investor Education Foundation guidelines list those entities which are eligible for awards and those to which awards will not be granted. The guidelines also outline grant priorities and the types of projects it will seek to fund. The Foundation will fund projects or programs that advance its mission by responding to unmet investor education needs or the protection needs of a target audience, those that expand the body of knowledge and offer solutions in the areas of investor education and protection, or that combine research and investor education.

The Foundation generally will not consider international programs or projects, salaries of permanent staff, capital costs, conferences that fail to provide long-term solutions or a sufficiently broad outreach, or lobbying, political contributions and fundraising events, among other proposals. There is no set grant amount. Each proposal will be considered on the merits of the project. Grant proposals should include a detailed plan for distributing the project deliverables and must be sustainable once the Foundation funding ends.

Commissioner Cynthia Glassman, who sought the investor education funds as part of the research analyst global settlement, said the SEC was pleased that the court approved the transfer of the investor education funds to the NASD Investor Education Foundation to support programs that will help investors make informed investment decisions. The SEC believes that the new plan will result in the efficient, cost-effective and expeditious use of the funds, according to Glassman.