Treadway Pays Second, $75,000 Fine to SEC Over Directed Brokerage

Stephen Treadway, former chairman of PIMCO Funds and chief executive of the firm's brokerage, settled with the Securities and Exchange Commission for $75,000 for directing brokerage business between 2000 and 2003 to nine firms in exchange for shelf space. The SEC said by paying some of the funds' distribution costs out of the funds', rather than the firm's, assets, Treadway caused a conflict of interest that should have been disclosed to the board.

In exchange for the directed trades, the PIMCO funds were placed on lists of preferred mutual funds and prominently mentioned in communications with the brokerages' customers, and the firm was permitted to participate in key meetings with registered reps.

State Street, Investors Bank Begin First Layoff Wave

State Street and Investors Bank and Trust told 450 employees they would no longer have jobs following State Street's $4.5 billion acquisition of IBT by the end of the year, The Boston Herald reports. Of the 450 losing their jobs, 360 are at IBT and 90 at State Street.

The layoffs are due to "redundancies primarily in corporate administration," said State Street spokeswoman Arlene Roberts.

Earlier, State Street indicated that 1,700 people will be losing their jobs.

NASD's Schapiro Foresees More Effective Regulation

NASD Chairman and CEO Mary Schapiro said she believes investment products will be more effectively regulated once the regulatory units of the NASD and the New York Stock Exchange are merged.

"It's my hope that consolidation will encourage more cooperation among regulators of all financial products," Schapiro said in her keynote speech at the Investment Company Institute's General Membership Meeting. "This cooperation will be critical to fixing what I consider the soft underbelly of regulation today: jurisdictional boundaries that focus on product rather than the investor."

This is particularly critical today, given new, and more complex, products being brought to market. Going forward, Schapiro said, it will be important for the NASD to work with the Securities and Exchange Commission, the Commodity Futures Trading Commission, the Municipal Securities Rulemaking Board the 50 state insurance departments and numerous banking authorities.

Schapiro said the NASD is paying particularly close attention to products with high fees and outsize and/or complicated risk, as well as brokerages and investment firms that target "vulnerable populations."

Schapiro said she expects the SEC to approve the merger this summer.

House to Hold Hearings On SEC Enforcement

House Financial Services Committee Chairman Barney Frank (D-Mass.) said that the panel will hold hearings to examine the Securities and Exchange Commission next month, Bloomberg reports. All five SEC commissioners, including Chairman Christopher Cox, will be called to testify.

"There have been concerns that various people have voiced," Frank said. "There is no point in prejudging, but obviously there are enough questions in the air that we are holding a hearing."

Specifically, the committee is concerned that the enforcement division is being stripped of its powers and that the SEC will make it more difficult for investors to bring lawsuits against companies.

The hearings come on the heels of an SEC investigation that the Government Accountability Office began in October at the request of Sen. Charles Grassley (R-Iowa). The probe was the result of a flap over an insider-trading charge at hedge fund Pequot Capital Management. A former SEC attorney, Gary Aguirre, suspected that Morgan Stanley Chairman John Mack, who had briefly served as chairman of Pequot, had tipped off the hedge fund that General Electric and Heller Financial were about to merge in 2001. When the SEC's enforcement division declined to investigate further, Aguirre complained and was fired shortly thereafter; he believed it was over the investigation, but the SEC maintained it was for abrasive and temperamental behavior.

Then, earlier this year, the SEC instituted new rules requiring attorneys with the SEC to obtain authorization from the commissioners before negotiating settlement fines with companies. Critics say that will limit the staff's ability to set fines.

In April, the SEC said it was considering a rule that would allow companies to create bylaws that would require shareholders to settle disputes out of court. Since, then, however, Cox has told Frank that the SEC is likely to drop that rule.

Power CEO: Putnam Will Regain Glory-In 2 Years

Power Financial CEO Jeffrey Orr told attendees at the firm's annual meeting that Putnam Investments is back on track, but that its profit margins won't reach industry levels for a year or two, the Montreal Gazette reports.

"One of the strongest pieces of evidence that the company's affairs are strengthening is that the redemption rate has now reached the industry level," Orr said. "It's not like money is flowing out of Putnam faster than other companies. The challenge right now is to get more gross sales."

But to strengthen sales further, he added, Power intends to sound a strong message about its faith in the company and prompt better performance in Putnam's large-cap funds.

Power Chairman Robert Gratton said one of the reasons the company acquired Putnam in February is that it has offices managing $18 billion in China and Japan, areas where Power wants to expand.

Fidelity Cattle Ranch Wrangles Up Tax Savings

A mere 25 head of cattle that Fidelity Investments keeps on a small "working ranch" portion of 300 acres it owns on its Westlake, Texas, campus qualifies the firm for $360,000 a year in real estate tax breaks, tax appraisers told The Boston Herald.

But the office complex and parking lots themselves are not covered by the "special tax value" that Fidelity first applied for in 1999.

In the past seven years, then, Fidelity would have saved an estimated $2.5 million in property taxes. Going forward, tax experts said, that will be multimillions in savings.

But Fidelity spokeswoman Anne Crowley said Fidelity didn't herd the cattle deliberately. The animals were on the Hunt family Circle T Ranch that was part of the land parcel that Fidelity acquired, she said.

Texas cattlemen said corporations commonly buy inexpensive land in Texas and apportion a part of the property as a farm. "It's done all the time," said Dalton Hoffman, an office manager at the Texas & Southwestern Cattle Raisers Association.

Claymore Licenses Super Sector Indexes for ETFs

Claymore Advisors has licensed the three Morningstar Super Sector Indexes to create three exchange-traded funds that will focus on manufacturing, services and information.

"Investors recognize that sector diversification is important, but the sheer number of sectors makes it difficult for them to track and allocate their holdings evenly across industries," said Christian Magoon, senior managing director at Claymore. "The Super Sector Indexes allow investors the opportunity to gain broader sector exposure or the potential to add balance to a concentrated portfolio."

Morningstar first introduced its 15 sector indexes in 2002, 12 of which track individual sectors and three of which combine sectors based on their relation to and dependence on one another. Claymore is the first company to license the Super Sector Indexes.

Also in 2002, Morningstar introduced other indexes for the first time, including a broad U.S. market index, 15 style- and capitalization-based indexes and two dividend indexes.

South Korea Considering Allowing Hedge Funds

The finance minister of South Korea said the nation will consider allowing hedge funds to operate in the country in an attempt to advance the economy amid competition from foreign manufacturers, according to Agence France Presse.

Kwon O-Kyu said the government wants to revitalize the asset management industry through diversified sales channels for funds and deregulation.

"Once a solid foundation is laid for asset management after the Capital Markets Consolidation Act takes effect, we will consider plans for allowing hedge funds," he said at a conference in Seoul. A related bill would be sent to parliament for approval next month, he said.

"Some point to the side effects of hedge funds, such as increasing financial market uncertainties by pursuing excessive short-term profits and herding to take advantage of fragile, underdeveloped markets," Kwon said.

"Nevertheless, hedge funds can also be used to provide new investment opportunities for investors and to promote the development of financial techniques, thereby upgrading Korea's financial markets to the next level."

Manufacturing has faced a lot of competition from advanced nations and China, while other "low emerging economies" are quickly catching up, he said.

"In order to make such an economic paradigm shift possible, fundamental changes are necessary to the financial system that facilitate the flow of capital in the economy," he said.

REITs Remain Strong Despite Housing Bubble

Real estate funds are expected to continue to perform well, despite some industry worries in other sectors, according to the Associated Press.

Private equity firm Blackstone Group's recent acquisition of Equity Office Properties (EOP) for $23 billion is causing some investors to continue to be bullish on the real estate market.

At times during the past few years, REITs, which generally invest in commercial real estate or larger residential projects such as apartment buildings, have shown returns greater than 25%.

"Most investors seem to find value every quarter, and I would say it's probably too early to announce a top to the real estate market," said Jeff Tjornehoj, senior analyst at Lipper.

"You're going to have some investors out there who believe the EOP buyout is not the last and they're probably willing to stretch their necks out a bit in the current environment because it seems so wide open for merger and acquisition activity," he said.

If the gains in the sector slow though coming years, which many analysts expect, the foundation could still be adequate to support solid, through perhaps slower, growth.

"I think people are concerned that real estate has done so well that it's comparable to the tech bubble of the late 1990s," he said, adding that he believes this is a completely different animal. "They make money and they have a real residual value," Tjornehoj said.

REITs are unique because they skirt most income taxes by paying out nearly all of their income to shareholders through dividends.

(c) 2007 Money Management Executive and SourceMedia, Inc. All Rights Reserved.

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