Back at his alma mater, school officials introduced him as a man who "lives ethics on a daily basis."
That fall day in 2004, during the height of the mutual fund market-timing and late-trading scandal, David Bergers told students crowded into an Eastern Nazarene College business forum that doing the right thing makes good business sense, according to an account in the Quincy, Mass., school's quarterly magazine.
And Bergers should know. As the associate district administrator for enforcement for the Securities and Exchange Commission's Boston District Office, he had an eagle-eye view of the effects of bending the rules. Beyond collecting millions in fines and restitution fees on behalf of the SEC and wronged investors, Boston's enforcement division unveiled scandals often credited as the impetus for a series of new SEC regulations that have reshaped the mutual fund industry.
"We continue to look at areas where conflicts of interest exist, and to that end, that they are fully disclosed," said 38-year-old Bergers, days after being named director of the Boston District Office.
Bergers brings to his position not only the perspective of an enforcer, but that of an industry insider. After graduating from Yale Law School in 1992, Bergers took a job with Boston-based law firm Choate, Hall & Stewart, where he first became exposed to securities and the SEC.
Then, in 1998, Bergers said, a desire for public service led him to join the SEC as a staff attorney in the enforcement division. But three years later, he was back in the private sector, working as vice president and assistant general counsel for broker/dealer Tucker Anthony, which was later acquired by RBC DainRaucher. By 2003, Bergers was back at the SEC's Boston office as district administrator of enforcement, a position he held until being promoted earlier this month.
"His impressive range of experience in the private sector and the SEC, where he has held a succession of important management positions, will serve investors well," said SEC Chairman Christopher Cox, in a statement.
With 47.5% of all U.S. households investing in mutual funds in 2005, according to the SEC's most recent annual report, protecting investors is a far-ranging task.
While it's true that Washington is where the SEC rules are made, Boston may set the tone when it comes to mutual funds. Often described as the industry's hub, Boston is home to some of the largest fund companies, including Banc of America's Columbia Management Group, Eaton Vance, Fidelity Investments, GMO America, John Hancock, Pioneer Investments. Putnam Investments and State Street Global Advisors.
Working in such a hotbed of mutual fund activities-and indiscretions-Bergers became steeped in some of the industry's landmark cases.
Putnam became perhaps the most heavily publicized case of the scandal. When a whistleblower first came to the Boston office of the SEC, he complained that he was turned away, and it was not until New York Attorney General Eliot Spitzer took on the case that the news of market timing and late trading at the Boston giant broke. Following the SEC's embarrassment of having ignored that whistleblower, the office administrator for the Commission's Boston office, Juan Marcelino resigned.
Ultimately, Putnam paid $193.5 million to state and Federal regulators after admitting to 251 illegal and other improper trades.
In the months after that, the SEC reasserted its power, proposing 14 new rules and bringing forth 15 enforcement actions. Last fall, Congress and the Government Accountability Office reviewed the SEC's mutual fund examination process and concluded that while there was room for improvement, it had been strengthened.
For its part, Putnam learned from its experience. In 2005, Berger's predecessor and now deputy director of the SEC's enforcement team in Washington, Walter G. Ricciardi, praised the company for cooperating on a case in which six present and former executives were charged with hiding revenue-sharing agreements and bilking investors.
Bergers also took part in a 2004 case in which MFS Investments paid $50 million to the SEC for failing to properly disclose directed-brokerage agreements through which various brokerage houses agreed to push MFS products. That charge came on the heels of another $225 million market-timing settlement the company paid.
Although the SEC never brought formal charges against Prudential Financial, after Bergers' enforcement team staged an investigation, two of the company's former brokers pleaded guilty last August to criminal charges of placing improper mutual fund trades on behalf of seven hedge fund clients, generating $1.3 billion in profits. Since then, Prudential has put aside a $136 million legal reserve.
In 2002, soft dollars hit the scandal circuit, when Gordon J. Rollert pleaded guilty to engaging in mail and wire fraud through his two investment advisory firms. Through his scheme, which lasted from 1993 to 1998 according to the SEC, Rollert personally pocketed $265,000 meant to benefit one of his clients, a church. He was sentenced to six months of house arrest, two years' probation, $15,000 in fines and $100,000 in restitution to the church.
Although the Rollert case marked Bergers' office's first soft-dollar case to result in criminal prosecution, it was not the last. The Columbia/Fleet case soon followed, through which traders were accused of accepting soft-dollar payments in the form of alcohol and entertainment at strip clubs.
In part because of these scandals, and the new rules that stemmed from them, during his tenure, Bergers has seen the SEC's Boston District office swell from about 80 employees in 1998 to approximately 130 today. Most of the new positions are for those of examiners, Bergers said.
A professed Red Sox fan who has spent most of his adult life in the Bay State, as director of the Boston District Office, Bergers' purview actually stretches beyond just Massachusetts to all six New England states, including Maine, Vermont, New Hampshire, Rhode Island and Connecticut. In addition to investment companies, the region, especially Connecticut, has a dense concentration of another industry of recent concern to SEC regulators: hedge funds.
As of Feb. 1, 2006, hedge funds, until now a lightly regulated, high-risk product reserved for investors with big bucks, are required to register with the SEC, creating a new field of oversight.
"We will certainly have additional work to do," Bergers acknowledged, adding that there is a chance the agency's rule, which has been challenged by the industry and is currently subject to Federal court appeal, may be overturned.
Until then, the Boston office will remain busy with the hedge fund registration and other rules, such as the pending independent chairman and independent directors rule that would apply to mutual fund boards.
The rule, adopted in 2004, is now stalled, under appeal in Federal court.
Bergers stopped short of offering any predictions for this, or any other, pending cases. "Clearly, our office, as well as the agency, will comply with any court order," Bergers said.
According to its 2005 annual report, the SEC has increased its focus on review of disclosures offered by investment companies from 10% of complexes in 2003 to 37% in 2005, thanks in part to the Sarbanes-Oxley Act.
Bergers does not shy away from the increased responsibilities this brings to an already busy office. "Our mission remains the same: the protection of investors," he said.
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