Practice

The debate over soft dollars nearly erupted into a barroom brawl on Capitol Hill last week, as the Senate Banking Committee held an open hearing on the much-maligned practice of mutual funds using brokerage commissions to pay for research and overhead costs.

PALM DESERT, Calif. - A culture of compliance and dedication to long-time shareholders has to be priority No. 1 for mutual funds. That was the consensus of a number of high-profile industry professionals at the annual Investment Company Institute Mutual Funds and Investment Conference last week.

Tripping over Federal securities regulations can bring a mutual fund advisor to its knees. But running afoul of state securities divisions can also be painful.

AIM Investments has stepped up efforts to publicly disclose its directed-brokerage activities and allocation of marketing fees. Newly drafted prospectus supplements filed with the SEC clearly outline the fund provider's intent to reveal non-binding sales goals with third-party brokerage firms and other potential investment distributors, a move lauded by shareholder advocates but implemented by very few asset managers.

Putnam Investments is cracking down on the perks brokers use to entice fund managers and other executives to give them their business.

Soft-dollar advocates are going to have a harder time pleading their case.

Board members beware. In addition to racking up a gargantuan $675 million settlement with Bank of America and FleetBoston Financial last week, regulators made it clear boards are fair game, as it ousted eight of the 10 directors of the beleaguered Nations Funds board.

The search is over.

The U.S. Attorney's office has filed criminal charges against three Mutuals.com executives, charging them with helping hedge funds deceive mutual fund companies by hiding their market-timing activities in separate accounts. Mutuals.com Chief Executive Officer Richard Sapio, President Eric McDonald and Chief Compliance Officer Michele Leftwich face up to five years in prison. This is the first time that federal, not state, regulators have filed criminal charges in the ongoing market-timing and late-trading investigation.

The SEC has formed a special committee to help determine whether 529 college savings plans offered through mutual fund companies and brokerage firms are overcharging investors.