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The rate of return credited to the Client's account may
not reflect directly the rate of return earned by
specific investments; the Client's rate of return may
be net of expenses or may reflect the fact that
* * * [LTD] may retain the benefit of special rates
attributable to the volume of investments controlled by
* * * [LTD].
For any amounts transferred by the client in excess of
$100,000, a certificate of deposit was purchased in the client's
own name in the face amount of $98,000. The maximum amount that
could be protected pursuant to the U.S. Government insurance
programs of the FDIC and FSLIC was $100,000.
For amounts less than $100,000 and in increments of $10,000,
a client's funds were pooled with the funds of one or more other
LTD clients to purchase another $98,000 certificate of deposit.
LTD called such a pooled fund the "IFF Fund". LTD represented to
its clients that IFF was a 28-day investment in a portfolio
comprising money market instruments and that IFF was created only
once a week. IFF, however, was merely a marketing name used to
differentiate between pooled and nonpooled purchases of
certificates of deposit. INC performed a daily accounting of
each client’s investments. If a client had more than $10,000 in
liquid funds in an LTD account as of the day once a week on which
LTD "created" the IFF Fund, INC placed the client’s funds in the
IFF Fund in $10,000 increments.
By having the funds pooled, a higher rate of return was
earned on larger certificates of deposit. IFF paid interest at a
rate 20 basis points over the rate reported in the Wall Street
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