Hi, expert, please help us.
Our problem is that the investment club president changed Valuation date and Net Asset Value from retrospectively from May 2011 to Oct 2013.
Our investment club Partnership Agreement (bylaw) states: The current value of the assets and property of the partnership, less the current value of the debts and liabilities of the partnership, shall be determined as of 1 business days preceding the date of periodic meeting. The aforementioned date of valuation shall hereinafter be referred to as "Valuation date". We usually have a club meeting once a month, mostly during the first week or second week of a month. Members make contributions to the partnership on the date of each periodic meeting. We buy club units and a unit price is calculated by dividing the total asset value of club on the "valuation date" with the total number of units outstanding.
In our September 2013 meeting, three members contributed a total of $14,000, other 10 member contributed a total of $ 1,325 (usually each member's contribution is around $25-$100 in each meeting, but there was no limit by Partnership Agreement then). The reason that the three invested much more than usual was the unit price was low at the time (about $ 20/unit by that monthly report. Usually unit prices were above $35).
In our October meeting, the club president and the treasurer presented a new report and announced that the September report was wrong and the September unit price was changed to 30.71/unit (They still used Valuation date defined by the by-law mentioned above). Some members requested to withdraw the contributions in September because the unit price was changed after the contributions, but the president refused.
In November meeting, the monthly report showed a big adjustment: the club president and the treasurer suddenly changed the Valuation Date from "1 business days preceding the date of periodic meeting" as defined in the bylaw to the last day of a month. Based on the new Valuation Date, the September unit price was changed again to $ 36.84/unit. Moreover, the president and the treasurer used the "last day of the month" as the Valuation date, changed total value of club assets and unit values, adjust members percentage of ownership from May 2011 to Oct 2013.
Some members email the president and asked for explanation. His answer for the change was that the numbers of "total club worth" used to calculate the unit values each month in the period were incorrect. He stated that it happened from April 2011 (the club started option trading) to November 2013 and the error was that the "short option" values (=$ needed to close open options) were subtracted twice from the "total club worth", resulting in a smaller worth and therefore a small unit value. When the "short option" value was very large (which is always a negative number), the unit value became very small. If a member contributed a large sum during that period, he/she would have been incorrectly assigned larger number of units''.
The concerning members had a small group meeting to verify the president's explanation. The group found the president's explanation was incorrect: previous month-by-month club reports were reviewed and there was no case in any month close open option values were subtracted twice. The group met with the president, pointed out that his explanation was invalid and asked him to honors the original unit price, but up to today, he still did not do any change.
We tried to find stock values at the old valuation date to determine the total club worth previously(net asset value) to recalculate correct unit price. However, the treasurer said he did not keep (print-out) brokerage monthly valuation date statement and the club report statement cannot match the records from brokerage. We contacted the brokerage (TD Amerritrade), the answer was the company only keeps day-by-day account reports for six month. Thus, it is impossible to track club asset value on the correct valuation dates.
My questions:
1. We do not believe the club president has right to change valuation date last November just by himself, especially, he changed total value of club assets and unit values, members percentage of ownerships from May 2011 to Oct 2013. Should we insist the club president and the treasurer to honor the original unit price based on the old valuation date?

2. Using the new valuation date back to the unit prices from May 2011 to October 2013 changed the whole value distribution to all members. Since we already paid taxes based on the old calculations in 2011, 2012 and 2013, what should we do?

3. If the club president continues to refuse to change back using the old valuation date for calculations of unit prices, what options we have?

Tian

While there are certainly accounting issues generated as you have described the situation, the predominant issues seem to those of communications, integrity, validity of the partnership agreement, access to accounting transactions, fiduciary duties, etc.

Be Well. Irina Sent from my iPad

> On Jul 7, 2014, at 9:12 PM, "Tian Hua via bivio.com" <user*34701900001@bivio.com> wrote:
>
> Hi, expert, please help us.
> Our problem is that the investment club president changed Valuation date and Net Asset Value from retrospectively from May 2011 to Oct 2013.
> Our investment club Partnership Agreement (bylaw) states: The current value of the assets and property of the partnership, less the current value of the debts and liabilities of the partnership, shall be determined as of 1 business days preceding the date of periodic meeting. The aforementioned date of valuation shall hereinafter be referred to as "Valuation date". We usually have a club meeting once a month, mostly during the first week or second week of a month. Members make contributions to the partnership on the date of each periodic meeting. We buy club units and a unit price is calculated by dividing the total asset value of club on the "valuation date" with the total number of units outstanding.
> In our September 2013 meeting, three members contributed a total of $14,000, other 10 member contributed a total of $ 1,325 (usually each member's contribution is around $25-$100 in each meeting, but there was no limit by Partnership Agreement then). The reason that the three invested much more than usual was the unit price was low at the time (about $ 20/unit by that monthly report. Usually unit prices were above $35).
> In our October meeting, the club president and the treasurer presented a new report and announced that the September report was wrong and the September unit price was changed to 30.71/unit (They still used Valuation date defined by the by-law mentioned above). Some members requested to withdraw the contributions in September because the unit price was changed after the contributions, but the president refused.
> In November meeting, the monthly report showed a big adjustment: the club president and the treasurer suddenly changed the Valuation Date from "1 business days preceding the date of periodic meeting" as defined in the bylaw to the last day of a month. Based on the new Valuation Date, the September unit price was changed again to $ 36.84/unit. Moreover, the president and the treasurer used the "last day of the month" as the Valuation date, changed total value of club assets and unit values, adjust members percentage of ownership from May 2011 to Oct 2013.
> Some members email the president and asked for explanation. His answer for the change was that the numbers of "total club worth" used to calculate the unit values each month in the period were incorrect. He stated that it happened from April 2011 (the club started option trading) to November 2013 and the error was that the "short option" values (=$ needed to close open options) were subtracted twice from the "total club worth", resulting in a smaller worth and therefore a small unit value. When the "short option" value was very large (which is always a negative number), the unit value became very small. If a member contributed a large sum during that period, he/she would have been incorrectly assigned larger number of units''.
> The concerning members had a small group meeting to verify the president's explanation. The group found the president's explanation was incorrect: previous month-by-month club reports were reviewed and there was no case in any month close open option values were subtracted twice. The group met with the president, pointed out that his explanation was invalid and asked him to honors the original unit price, but up to today, he still did not do any change.
> We tried to find stock values at the old valuation date to determine the total club worth previously(net asset value) to recalculate correct unit price. However, the treasurer said he did not keep (print-out) brokerage monthly valuation date statement and the club report statement cannot match the records from brokerage. We contacted the brokerage (TD Amerritrade), the answer was the company only keeps day-by-day account reports for six month. Thus, it is impossible to track club asset value on the correct valuation dates.
> My questions:
> 1. We do not believe the club president has right to change valuation date last November just by himself, especially, he changed total value of club assets and unit values, members percentage of ownerships from May 2011 to Oct 2013. Should we insist the club president and the treasurer to honor the original unit price based on the old valuation date?
>
> 2. Using the new valuation date back to the unit prices from May 2011 to October 2013 changed the whole value distribution to all members. Since we already paid taxes based on the old calculations in 2011, 2012 and 2013, what should we do?
>
> 3. If the club president continues to refuse to change back using the old valuation date for calculations of unit prices, what options we have?
>
> Tian

It sound like you need an audit of your accounts. It is recommended that non-officer members perform an annual audit of the club’s books. A majority of partners could also choose to vote for an outside audit by a CPA. Be aware though that CPAs frequently do not understand investment club accounting.

I would suggest that you consider amending the partnership agreement valuation date to month-end or some other date that can be verified on a continuing basis.

It would appear from what is written that the treasurer has been negligent in maintaining the club’s financial records. An IRS audit could create problems for every partner. Fortunately, the IRS very rarely audits investment clubs.

On Jul 7, 2014, at 8:12 PM, Tian Hua via bivio.com <user*34701900001@bivio.com> wrote:

> Hi, expert, please help us.

> Our problem is that the investment club president changed Valuation date and Net Asset Value from retrospectively from May 2011 to Oct 2013.


> 1. We do not believe the club president has right to change valuation date last November just by himself, especially, he changed total value of club assets and unit values, members percentage of ownerships from May 2011 to Oct 2013. Should we insist the club president and the treasurer to honor the original unit price based on the old valuation date?

Unless an appropriate majority of partners has granted the officers the authority to change the valuation date away from that listed in your partnership agreement, no such power exists. I suspect that there is a problem with the valuations and the president and treasurer, without prior notice to the other partners, made an attempt to fix the problem the best way they knew how since the treasurer dropped the recordkeeping (bowling) ball on his foot.

2. Using the new valuation date back to the unit prices from May 2011 to October 2013 changed the whole value distribution to all members. Since we already paid taxes based on the old calculations in 2011, 2012 and 2013, what should we do?

> This should cause each partner to prepare an amended income tax return (State and Federal) to reflect the differences in reported income and expenses. I would suggest that you might vote that the high-handed president or the inept treasurer should pay each partner’s out of pocket cost for those amended returns.


> 3. If the club president continues to refuse to change back using the old valuation date for calculations of unit prices, what options we have?

Withdraw, call for (impeachment) removal of the president and treasurer, and replace them with other qualified persons


>
> Tian

Thanks!!
--------------------------------------------
On Mon, 7/7/14, Clarence Joseph Farrell <cjfarrell46@comcast.net> wrote:

 Subject: Re: [club_cafe] Change of valuation date
 To: club_cafe@bivio.com
 Date: Monday, July 7, 2014, 10:17 PM
 
 It sound like you need an
 audit of your accounts.  It is recommended that non-officer
 members perform an annual audit of the club’s books.  A
 majority of partners could also choose to vote for an
 outside audit by a CPA.  Be aware though that CPAs
 frequently do not understand investment club accounting.
 
 I would suggest that you
 consider amending the partnership agreement valuation date
 to month-end or some other date that can be verified on a
 continuing basis.
 
 It would
 appear from what is written that the treasurer has been
 negligent in maintaining the club’s financial records. 
 An IRS audit could create problems for every partner. 
 Fortunately, the IRS very rarely audits investment clubs.
 
 On Jul 7, 2014, at 8:12 PM,
 Tian Hua via bivio.com <user*34701900001@bivio.com>
 wrote:
 
 > Hi, expert,
 please help us.
 
 > Our
 problem is that the investment club president changed
 Valuation date and Net Asset Value from retrospectively from
 May 2011 to Oct 2013.
 
 
 > 1.  We do not believe the club president
 has right to change valuation date last November just by
 himself, especially, he changed total value of club assets
 and unit values, members percentage of ownerships from May
 2011 to Oct 2013.   Should we insist the club
 president and the treasurer to honor the original unit price
 based on the old valuation date?
 
 Unless an appropriate majority of partners has
 granted the officers the authority to change the valuation
 date away from that listed in your partnership agreement, no
 such power exists.  I suspect that there is a problem with
 the valuations and the president and treasurer, without
 prior notice to the other partners, made an attempt to fix
 the problem the best way they knew how since the treasurer
 dropped the recordkeeping (bowling) ball on his foot.
 
 2. Using the new valuation
 date back to the unit prices from May 2011 to October 2013
 changed the whole value distribution to all members.  Since
 we already paid taxes based on the old calculations in 2011,
 2012 and 2013, what should we do?
 
 > This should cause each partner to prepare
 an amended income tax return (State and Federal) to reflect
 the differences in reported income and expenses.  I would
 suggest that you might vote that the high-handed president
 or the inept treasurer should pay each partner’s out of
 pocket cost for those amended returns.
 
 
 > 3. If the club president
 continues to refuse to change back using the old valuation
 date for calculations of unit prices, what options we
 have?
 
 Withdraw, call for
 (impeachment) removal of the president and treasurer, and
 replace them with other qualified persons
 
 
 >
 >
 Tian