Heartland fined $3.9M for mispricing funds

The Securities and Exchange Commission has ordered Heartland Advisors Inc. to pay $3.9 million in penalties for marking down the prices of two municipal bond funds more than seven years ago. The company and its chief executive, William J. Nasgovitz, were fined $3.5 million. Heartland chief operating officer Paul T. Beste and former employees Thomas Conlin and Greg D. Winston were fined $95,000 each. Senior vice president of trading Kevin D. Clark and former employee Kenneth J. Della were ordered to pay $25,000 each. The SEC alleged that the Milwaukee-based investment firm failed to properly price the value of some bonds in the Short Duration High-Yield Municipal Fund and the High-Yield Municipal Bond Fund in 2000. The funds had invested primarily in non-rated medium- and lower-quality municipal bonds. When projects underlying some bonds held by the funds went into default and other projects were failing, Heartland didn't accurately re-price the funds to reflect the lower valuations, the SEC said. The net asset value of the high-yield fund plummeted 69.4% in one day, and the short-duration fund fell 44%. As a result, investors lost about $60 million when Heartland Advisors was forced to devalue bonds in the funds in October 2000. The employees agreed to the SEC order without admitting or denying its findings.