SEC to Create Office Focused on Restitution

The Securities and Exchange Commission will create an office focused solely on returning restitution money to investors harmed by stock fraud, and one of its first missions will be to return the $3.4 million in fines and disgorgement to mutual fund investors impacted by the timing scandal.

The office makes sense, given how slowly the Commission currently is able to return the money, SEC Chairman Christopher Cox told a Senate appropriates subcommittee. The SEC has been working with the Treasury Department's Bureau of Public Debt to invest money it collects in interest-bearing accounts.

Janus, Invesco Close To Repaying Investors

Janus and Invesco are close to repaying the combined $425 million in restitution they owe investors. The Securities and Exchange Commission will soon announce how the money will be distributed this coming fall, Donald Hoerl, associate director of enforcement in the SEC's Denver office, told the Rocky Mountain News.

"The Commission wants [the payments] out the door," concurred George Curtis, head of the Denver office, of the money first collected four years ago.

While Janus' share of the payments is $100 million and Invesco's is $325 million, analysts said that individual investors could only expect to see a few dollars returned to them.

Supreme Court to Hear Municipal Bond Case

The Supreme Court said it will hear a case in its next term this fall that could drastically impact both the municipal bond market and 529 college savings plans.

At issue is whether states can exempt municipal bonds issued in their own state from taxes yet levy taxes on municipal bonds issued by other states.

A Kentucky court ruled last year that taxing municipal bonds issued by other states is in violation of the anti-discriminatory provisions for out-of-state commerce outlined in the Constitution.

"The outcome has broad implications for the municipal bond market at large, far beyond Kentucky's borders," the state's Secretary of Commerce John R. Farris told

Yet, based on a case concerning local governments in New York that the Supreme Court heard in which it ruled in their favor, some legal experts expect it will overturn Kentucky's decision and allow states to continue to exempt their own municipal bonds from taxes.

Mansueto Aims to Make Morningstar a Super Site'

Joe Mansueto, chairman of Morningstar, said he has even bigger plans for his company: to deliver a "seamless, integrated solution" like Microsoft Office, the Chicago Sun Times reports.

Mansueto made the comment during an annual shareholder meeting at which he revealed that Morningstar plans to unveil additional research products-namely covering hedge funds, foreign currencies, commodities, retirement planning and portfolio analytics-and turn its website into a launch pad, or "super site," for all of its products and services.

Mansueto plans to continue to serve individuals, financial planners and institutions, thereby covering the entire financial services industry and achieving "critical mass," he said.

Morningstar's revenue rose 39% in 2006, and the company typically posts profits of 25% or better.

Pozen Sees No Reason To Sell MFS Investments

MFS Investment Management, which had been on the market until last October, is no longer looking for a buyer, the firm's chairman, Robert Pozen, tells Bloomberg.

"We think there would not be a benefit to selling the company because we operate as a relatively standalone operation [from parent company Sun Life Financial] and do very well," Pozen said.

Of particular note, Pozen said, since a new management team was put in place three years ago, MFS's assets have increased 50% to $200 billion. The firm's profits also increased 38% in the first quarter to $61 billion.

"We're feeling pretty good about it," Pozen said.

Shareholders Concerned About Proxy Advice Firms

Mutual funds, pensions and other large shareholders that rely on two large proxy advisory firms, Glass Lewis and Institutional Shareholder Services, are concerned that new ownership at the businesses might be affecting the quality of the advice they impart, The Wall Street Journal reports.

In particular, Xinhau Finance of Shanghai, which has ties to the Chinese government, increased its stake in Glass Lewis from 19.9% to buy it outright, and two weeks ago, two of the firm's top research executives resigned due to concerns about Xinhua Finance.

"I am uncomfortable with and deeply disturbed by the conduct, background and activities of Glass Lewis's new parent, its senior management and its directors," said Jonathan Weil, the former director of research at Glass Lewis.

However, Dan Connell, chief operating officer at Xinhua Finance, said the Chinese government only owns 1% of Glass Lewis and that its proxy advisory business is kept distinct from its investor relations service.

The concerns at ISS, which RiskMetrics acquired late last year, are that should RiskMetrics go public, as it is considering, it could beef up its corporate governance consulting business, which would mean it could be more inclined to side with management.

"The question is, will the short-term needs of shareholders for value influence the voting policies of ISS?" said Richard Ferlauto, director of pensions and benefits at the American Federation of State, County and Municipal Employees.

When it Comes to Proxies, The Mentality is Mutual

Researchers affiliated with the Stanford Graduate School of Business said that while mutual funds take proxy votes for boards of directors seriously, they also want to be in line with other funds they compete with.

Gregor Matvos, a Harvard doctoral candidate, and Michael Ostrovsky, an assistant professor of economics at Stanford, analyzed three million votes cast by 3,600 mutual funds between 2003 and 2005. Besides finding that certain fund families tend to be more critical of management than others-withholding votes for individual board members more frequently-the researchers said that funds also tend to vote in "clusters," with a concentrated number withholding votes.

"If it were a simple matter of funds voting for those directors they think are good, or withholding votes for those they think are bad, we would see a more even distribution," Ostrovsky said.

The researchers said that now that funds must disclose how they vote, some are worried that companies they vote against will retaliate by withholding important performance data, or other information that might affect trading.

As a result, funds try to determine how their peers might vote.

"In fact, there is a whole industry of advisors devoted to guiding funds about their voting choices," said Ostrovsky. "So word gets around."

As a result, the pair said that changing the current rules, through which directors can be elected with a single vote, to ensure directors must be voted by majority, would result in little change. "Under the current system, directors who are elected in fact nearly always receive much more than 50% of the vote."

Shareholder Activists Speaking Up in Europe

Whereas individual investors and even hedge funds have typically been passive in Europe, they are increasingly speaking up, The New York Times reports.

In the most extreme cases, they have taken executives to court, led a no-confidence vote against management or created a stir at an annual meeting. But most typically, they manage to oust executives, force the company to be sold or succeed in driving up share prices.

"What we have seen so far may only be the beginning," said Antonio Borges, chairman of the European Corporate Governance Institute and a vice chairman at Goldman Sachs. "There are many more opportunities as there are many more underperforming companies."

"Activist shareholders are giving more confidence to those who felt in the past that they had no say and remind managers of their duties to account for shareholders' interest," said David Brooks, head of mergers at accounting firm Grant Thornton.

It cannot be denied that executives are feeling the heat. The chairman of ABN Amro told a court his company had become "a toy for hedge funds" and the CEO of Deutsche Borse, who activists kicked out, issued a memoir detailing the experience titled "Invasion of the Locusts."

Fidelity Denies Bowing to Anti-PetroChina Activists

Fidelity Investments said it didn't sell 91% of its holdings in PetroChina, which invests in government-sponsored oil projects in Sudan, to appease activists, The Boston Globe reports.

The individual managers of the funds holding the security made the decision on their own, said Anne Crowley, a spokeswoman for Fidelity. The situation in Darfur "is a matter to be properly resolved by the governments of the world and the United Nations," Crowley said, "and we truly hope they will do what is right."

Nonetheless, filings also show that Fidelity sold shares in another Chinese oil firm doing business in the region, Sinopec.

David Rubenstein, executive director of the Save Darfur Coalition, said the fund giant "appears to be making a genuine effort to financially separate from PetroChina" but that it remains to be seen whether Fidelity switched its shares to the Hong Kong stock exchange.

Human rights groups have pressured fund companies for at least two decades to take a political stance on their holdings, starting with apartheid in South Africa. Most recently, the call has been on global warming and gay marriage.

Despite Fidelity's statement, John Bonnanzio, editor of a newsletter for Fidelity investors, said it appears that the company did, indeed, heed the activists' call. "It would be an extraordinary coincidence for them to have sold these shares otherwise," he said.

Schwab: GenX Needs Help Overcoming Debt Burden

Generations Xer's aren't slackers; they just need more guidance, according to research sponsored by Charles Schwab.

Those between 27 and 42 work hard, but they have more debt than cash, according to The Boston Globe. This, coupled with a distrust of financial services, means this generation lacks the guidance it needs to correct these problems.

"They aren't' being well served," said Jonathan Craig, who spearheads Schwab's efforts to reach out to thirty-somethings.

With larger school loans, and more lavish lifestyles dependent on cell phones, computers and Internet service, Xer's Gen earn less, in real dollars, than the generation before.

In 2005, the median income of a 25-year-old male was $31,161. In today's dollars, that was $35,296 in 1975.

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

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.