The allegations read: Plaintiff securities and exchange commission ("commission"), for its complaint against defendants pinnacle advisors, llc ("pinnacle"), robert f. Cuculich ("cuculich"), benjamin r. Quilty ("quilty"), mark e. Wadach ("wadach"), and lawton a. Williamson ("williamson") (collectively, "defendants"), alleges that this case involves the failure of a registered open-end investment company (the "nysa fund" or the "fund") to comply with rules 22e-4 (the "liquidity rule") and 30b1-10 under the investment company act of 1940 (the "investment company act"). From june 2019 to june 2020, more than 15% of the nysa fund's net assets were invested in the restricted shares of a medical device company and the fund failed to comply with applicable reporting and filing requirements or to bring its position in the restricted shares of the medical device company under the 15% threshold as required by sec rules. The nysa fund's adviser, pinnacle, and its principals, cuculich and quilty, were primarily responsible for monitoring the liquidity of the fund's investments, classifying the liquidity of such investments in accordance with the liquidity rule, and making the required reports to the fund's board of trustees ("board") and related filings with the commission. Pinnacle, cuculich, and quilty aided and abetted the fund's violations by not classifying the medical device company restricted shares as an "illiquid investment" when the underling restrictions, transfer limitations, and lack of any market for the shares required that classification. Pinnacle, cuculich, and quilty also disregarded the advice of the fund's counsel who resigned over this issue, as well as the advice of the fund's auditors. In addition, they made false and misleading statements and omissions about the basis for their improper classification to the commission's division of investment management ("sec staff"). Finally, they aided and abetted the nysa fund's violations by failing to have the fund timely submit required reports to the fund's board of trustees and to the commission. The nysa fund's board, including the independent trustees wadach and williamson, had their own oversight responsibilities regarding the fund's compliance with the liquidity rule. Wadach and williamson aided and abetted the fund's violations of rule 22e4(b)(1) because they were keenly aware of the facts that rendered the shares illiquid - information they learned as members of the fund's valuation and audit committees of the fund - as well as the advice of the fund's counsel and auditors, yet they allowed the fund to improperly classify the shares as a "less illiquid" investment instead of an "illiquid investment." while the nysa fund deregistered with the commission on september 9, 2020 and transferred its assets to a liquidating trust (the "nysa liquidating trust"), this illiquid investment in the shares of the medical device company still has not been sold. As such, more than two-and-a-half years after deregistering, the nysa fund investors have yet to receive a distribution of any kind relating to these shares. Accordingly, quilty aided and abetted the fund's violations of rules 22e-4(b)(1) and 30b1-10 of the investment company act.
