The Department of Labor has launched its own investigation into the market-timing policies and commission schedules of an unnamed group of large mutual fund provides to determine whether any of these practices have harmed employee-benefit plan participants, Dow Jones Newswires reports.
The DOL audit launched earlier this year potentially amounts to a nasty one-two punch to mutual fund companies that already settled charges with the Securities and Exchange Commission and New York Attorney General Eliot Spitzer. The SEC and Spitzer combined forces last year to crack down on special arrangements permitting rapid-fire mutual fund traders to strip profits from long-term investors, as well as deals mutual fund companies made with brokerage firms to pay them undisclosed fees for additional sales support.
Now the DOL is reopening both cans of worms on behalf of its constituents in the defined benefit market. "It's not that someone made a specific complaint or a specific allegation...but we want to make sure that companies are in compliance with the law," Ann Combs, assistant secretary of labor, told Dow Jones. "We're very serious about this, and we're not going to shirk our responsibilities."
Although the DOL lacks jurisdiction over the mutual fund industry, the agency is responsible for regulating a number of retirement plans that distribute mutual funds. In addition, the DOL has the authority to hold pension plan fiduciaries, which are often mutual fund companies, accountable for losses stemming from inappropriate handling of funds. "A mutual-fund affiliate or other retirement plan fiduciary that engages in or facilitates market timing or late trading, causing losses to an Erisa-covered plan, is liable to restore losses to the plan," Combs said in a speech earlier this year.
The staff of Money Management Executive ("MME") has prepared these capsule summaries based on reports published by the news sources to which they are attributed. Those news sources are not associated with MME, and have not prepared, sponsored, endorsed, or approved these summaries.