TD Ameritrade Supports Primary Fund With $50M
TD Ameritrade announced Wednesday that it will kick in an additional $50 million to support investors in Reserve Funds' Primary Fund, whose net asset value fell to 97 cents.
TD Ameritrade said it initiated a redemption request from Primary on behalf of its investors, but that the Securities and Exchange Commission has granted Reserve's request to suspend redemptions.
Since the U.S. Treasury Department's $50 billion guaranty program only applies to assets held as of Sept. 19, TD Ameritrade said it decided to intervene on behalf of its clients and that it was able to do so because of its current "strong financial position."
"While these are unprecedented times for the nation's financial markets, we believe that TD Ameritrade clients can have confidence in the fact that their investment firm has their best interests at heart," said Fred Tomczyk, president of chief executive officer of the firm. "In the absence of action by the Federal Reserve and the Treasury Department, we are stepping in to help our clients because it's the right thing to do."
TD Ameritrade said that the financial support will result in a $50 million write-down, or 5 cents per diluted share, in the fourth quarter.
AmSouth to Pay $11M for Improper Mutual Fund Use
The Securities and Exchange Commission issued an enforcement action Tuesday against AmSouth Bank and AmSouth Asset Managment for defrauding the AmSouth mutual funds by using a portion of administrative fees that shareholders paid for marketing and other unrelated expenses that should have been paid out of the investment advisor's coffers. Those expenses included the salary, bonus, benefits and country club membership of the president of the AmSouth Funds.
The SEC said that AmSouth entered into improper side agreements with the funds' administrator, BISYS Fund Services, for BISYS to rebate $16 million of the $49 million administration fee that the AmSouth funds paid in exchange for the funds to recommend BISYS as the administrator to the board of trustees.
In addition, the SEC found that BISYS paid AmSouth $1.161 million as a consulting fee for its advice on how to market its own funds, without disclosing either of these agreements to the funds' independent trustees or shareholders.
AmSouth is now part of Regions Bank, and BISYS' investment services division was acquired by Citigroup Fund Services in August of last year.
"This is the Commission's first case against a mutual fund advisor that secretly used a portion of the administrative fees paid by the fund's shareholders to pay for marketing expenses that should have been paid out of the advisor's own pocket," said Linda Chatman Thomsen, director of the SEC's division of enforcement. "The Commission demands transparency in mutual fund disclosures and will not tolerate advisors that seek to hide their own marketing expenses in other types of fees charged to fund shareholders."
Without admitting or denying the charges, AmSouth Asset agreed to pay $11.4 million, consisting of $7.7 million in disgorgement, prejudgment interest of $2.2 million and a $1.5 million penalty.
Judge Expedites Ameriprise Lawsuit Against Primary
Minnesota U.S. District Court Judge Paul Magnuson has decided to expedite Ameriprise Financial's lawsuit against Reserve Funds' Primary Fund. The court will fast-track the discovery of documents and other supporting information.
Ameriprise filed its complaint against the fund on Sept. 19, three days after the money market mutual fund broke the buck. The suit, the third to date to be filed against the Primary Fund, accuses the investment advisor of tipping off certain investors to the problem before publicly announcing it.
Ameriprise attorney Robert Skinner told Reuters that the brokerage firm "is anxious for the opportunity to shed some light on the illegal tipping that we believe occurred, to ensure that the small shareholders and the large institutional shareholders get equal treatment when the fund is distributed."
But some legal experts say that because money market mutual funds do not guarantee that their net asset value will remain at $1 per share, investors may have a hard time making a legal case.
TCW CIO Warns Crisis Could Continue for Years
Jeffrey Gundlach, chief investment officer of TCW Group, ticked off a host of cataclysmic forecasts for the financial services industry in a recent client conference call that he titled "No Market for Old Men."
The market, credit and housing crises could continue for years, and the Standard & Poor's 500 Index could decline another 30%, he warned. Defaults on prime mortgage loans could soar from 2% to as high as 10%, he said, calling the fallout sheer "carnage."
Citigroup could be headed for trouble, Morgan Stanley and Wachovia are likely to be the next two takeover targets, and the total write-offs among financial services firms could top $1 trillion, he said.
"If it's like the Depression experience, and it sure is shaping up that way, it could take several years" for the decline to continue, Gundlach said. "Maybe we won't see a bottom in home prices until 2014."
However, he is bullish on and recommends buying stocks in Wells Fargo, JPMorgan and Bank of America.
"Risk aversion is the order of the day," he said.
Lord Abbett Slapped With Suit Over A Share Sales
Charging that Lord Abbett misleadingly marketed Class A shares on 21 of its funds as offering superior performance than lower-cost Class B and Class C shares, which actually delivered identical performance, investors sued the company on Sept. 18. The investors took issue with paying a 5.75% sales charge on the Class A shares.
Finklestein & Krinsk filed the class-action lawsuit on behalf of Zavolta v. Lord, Abbett in the U.S. District Court for the District of New Jersey for the period from Sept. 11, 2003 through the present.
The suit says Lord Abbett defrauded investors by disseminating prospectuses containing incomplete and misleading information, earning the firm greater profits at the expense of plaintiff and class members.
SEC to Hold CCOutreach National Seminar Nov. 13
The Securities and Exchange Commission is planning its next CCOutreach seminar for Nov. 13 at its Washington headquarters.
Topics to be covered include valuation, prevention of insider trading, ensuring best execution and making disclosures that are understandable and meaningful to investors.
"Effective compliance procedures at mutual fund and advisory firms are critical to the protection of nearly 100 million Americans who invest in mutual funds," said Lori Richards, director of the SEC's Office of Compliance Inspections and Examinations.
CCOs play an increasingly critical role in helping funds identify and manage risks, added Andrew J. Donohue, director of the Division of Investment Management.
Fidelity Reaps $7 Billion in Assets from Indep. Brokers
Fifty-five brokers with a combined $7 billion in assets under management that have left wirehouses to form their own independent registered investment advisory firm have selected Fidelity as their custodian in the first six months of this year. This is double the new assets Fidelity attracted from breakaway clients in 2007.
In making the selection, the new clients cited Fidelity's technological prowess, experience, particularly in working with breakaway clients, and its HybridOne platform for dually registered advisors.
"Making the decision to break away and establish an RIA firm offers many rewards, but it also has many challenges, such as understanding the financial, legal and professional obligations," said Steve Adams, of Adams Asset Advisors, one of Fidelity's new clients. Fidelity said it expects the trend for independent RIAs to set up shop will continue.
Deutsche Offers Insured Money Market Fund
Evolve Bank and Trust in Memphis has announced that it is making available to its customers the Deutsche Bank Insured Deposit Program.
The product, which was introduced last Monday, gives account holders expanded Federal Deposit Insurance Corp. coverage of money market deposit accounts, with protection of up to $3 million per individual account, $6 million on joint accounts, daily liquidity and free online access.
The insured-deposit program offers maximum safety of principal, flexibility, no minimum investment requirement, diversification of assets and a competitive money market interest rate, the company said.
W. Scott Stafford, Evolve's president and CEO, said investors have a keen interest in FDIC-insured investment products.
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