Company Press Release

Washington, D.C., Nov. 4, 2009 – The Securities and Exchange Commission today charged New York City-based investment adviser Value Line Inc., its CEO, its former Chief Compliance Officer and its affiliated broker-dealer with defrauding the Value Line family of mutual funds by charging over $24 million in bogus brokerage commissions on mutual fund trades funneled through Value Line’s affiliated broker-dealer, Value Line Securities, Inc. (VLS).

Value Line, its CEO Jean Buttner, its former Chief Compliance Officer David Henigson, and VLS agreed to settle the SEC’s charges by consenting, without admitting or denying the Commission’s findings, to the entry of a cease-and-desist order that also requires total payments of nearly $45 million in monetary remedies, including civil penalties. The SEC’s order also imposes industry and officer and director bars and other relief.

“Value Line misappropriated millions of dollars from the mutual funds they managed by artificially allocating fund trades and then charging the funds for phantom brokerage services,” said Robert Khuzami, Director of the SEC’s Division of Enforcement. “Such blatant wrongdoing will not be tolerated.”

David Rosenfeld, Associate Director of the SEC’s New York Regional Office, added, “Investment advisers are required to place their clients’ interests ahead of their own. Instead of acting in the best interests of the funds it managed, Value Line defrauded the funds by charging phony brokerage commissions.”

The SEC’s order finds, among other things, that:

From 1986 to November 2004, Value Line, while serving as investment adviser to the Value Line funds, directed a portion of the funds’ securities trades to VLS through its so-called “commission recapture program.” Value Line arranged for one of three unaffiliated brokers to execute, clear and settle the Funds’ trades at a discounted commission rate of $.02 to $.01 per share. Instead of passing this discount on to the funds, Value Line had the unaffiliated brokers bill the funds $.0488 per share and then “rebate” $.0288 to $.0388 per share to VLS. In total, VLS received over $24 million in bogus brokerage commissions from the funds pursuant to this scheme, as VLS did not perform any bona fide brokerage services for the funds on these trades.

Value Line falsely represented to the funds’ Independent Directors/Trustees and shareholders that VLS provided bona fide brokerage services for the commissions it received and that VLS otherwise served the best interests of the funds and their shareholders.

Buttner directed the “commission recapture program” and monitored its profitability to VLS, and thus to Value Line, by receiving periodic updates from Henigson, who was responsible for implementing the scheme. Buttner and Henigson were involved in structuring and negotiating the recapture arrangement with the unaffiliated rebate brokers. Through Buttner and Henigson, Value Line also made materially misleading statements and omissions about VLS and the recapture program to the funds and their shareholders in presentations to the Independent Directors/Trustees and in public filings with the Commission.

The SEC’s order finds that Value Line, VLS, Buttner and Henigson violated Section 17(a) of the Securities Act of 1933, Section 10(b) of the Securities Exchange Act of 1934 and Rule 10b-5 thereunder; Value Line violated Sections 206(1) and 206(2) of the Investment Advisers Act of 1940, and VLS, Buttner and Henigson aided and abetted Value Line’s violations of Sections 206(1) and 206(2) of the Advisers Act; Value Line violated Section 207 of the Advisers Act and Section 15(c) of the Investment Company Act of 1940; Value Line, Buttner and Henigson violated Section 34(b) of the Investment Company Act; and Value Line and VLS violated Section 17(e)(1) of the Investment Company Act.

The Commission’s order requires that Value Line pay $24,168,979 in disgorgement, $9,536,786 in prejudgment interest, and a $10 million penalty; Buttner pay a $1 million penalty; and Henigson pay a $250,000 penalty. In addition, Buttner and Henigson are each barred from association with any broker, dealer, investment adviser and investment company; and are prohibited from acting as an officer or director of any public company. Value Line, VLS, Buttner and Henigson further consented to censures and cease-and-desist orders prohibiting them from violating the above provisions of the securities laws.


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