Kathleen Johnston Jarboe

Nevis Capital Management LLC plans to settle charges that the company improperly allocated lucrative initial public offering shares to its fund customers, a Securities and Exchange Commission lawyer said.

The Baltimore money management firm had been scheduled for a hearing on the matter yesterday.

But the date was canceled as regulators and fund managers worked on a settlement deal, said Amy Greer, a senior trial counsel for the SEC.

Greer said the two parties had agreed on the major tenets of a settlement but that it could take several more weeks to finalize.

A lawyer for the company did not respond to calls for comment yesterday.

Federal regulators at the SEC accused Nevis of violating antifraud and reporting rules in July after conducting a routine examination of the firm. They issued a cease-and-desist order at the time.

Regulators said the firm and its management, President David R. Wilmerding III and executive Vice President Jon C. Baker, improperly funneled IPO purchases to two of Nevis's 105 clients to increase the firm's management fees and its ability to attract new clients.

The trades involved 2,857,000 shares of 84 IPOs purchased between December 1998 and December 1999. Baker and Wilmerding used the quick money-making shares to pump up assets in Snowdon Limited Partnership, an unregistered investment company formed by Nevis, according to SEC documents.

Unlike other clients, Snowdon paid Nevis Capital a performance- based management fee of 20 percent of profits. Between allocating IPO shares to Snowdon and the firm's Nevis Fund, Nevis Capital raked in a total of $2.6 million in management fees from IPO trades, regulators said.

But improper distribution of IPO shares had other effects as well, including boosting the Nevis Fund's return performance, which was used to lure new investors to the money manager.

In 1999, the fund's cumulative return grew from 90.1 percent at the end of May to 154.6 percent by Sept. 30 and 286.5 percent by the end of the year. The lofty gains made it the highest performing mutual fund in Maryland for the year - a fact published by several newspapers at the time.

In prospectuses, fund officials attributed the amazing returns to the company's long-term investment strategy, noting that only a couple of IPOs contributed to its success.

But regulators claimed the returns would have been -5 percent, - 3.6 percent and 41 percent respectively without the IPO shares.

The Nevis Fund's fortunes changed considerably in 2000 as many of its technology holdings began to suffer. That year the fund lost 24.9 percent. It did worse the following two years, posting 44.4 percent and 47.6 percent losses in 2001 and 2002 respectively before making a strong rebound this year.

The 12-year-old company now manages about $186.5 million in assets, including the $33.5 million Nevis Fund.

Copyright 2003 Dolan Media Newswires

Provided by ProQuest Information and Learning Company. All rights Reserved.