If proper monitoring of fund flows had taken place, much of the market timing that has marred mutual fund firms may have been much easier to detect, Securities and Exchange Commission Chairman William Donaldson said Wednesday.

"It is clear with hindsight that if there had been monitoring of fund flow data – that is, purchases and redemptions of fund shares – directors might have been able to detect significant short-term trading in their funds and pursue whether there were abuses in this area," Donaldson told a conference of mutual fund directors.

Currently, independent directors and their possible awareness of both the unethical market timing and illegal late trading are being investigated by regulators like the SEC and New York Attorney General Eliot Spitzer.

"We are asking whether the directors were aware of these abuses, and whether there were red flags that were ignored," Donaldson said at the Mutual Fund Directors Forum.

Next Wednesday, the SEC is expected to meet and decide on several key reforms within the fund industry, including how independent fund boards should be and how forthcoming and explanatory they are regarding fees.

Subscribe Now

Access to premium content including in-depth coverage of mutual funds, hedge funds, 401(K)s, 529 plans, and more.

3-Week Free Trial

Insight and analysis into the management, marketing, operations and technology of the asset management industry.