Ex-Brean Murray EVPs Charged with Late Trading

The Securities and Exchange Commission has charged two former executive vice presidents with Brean Murray with placing late trades for a number of clients, including Canary Capital.

Without admitting or denying the SEC's findings, Ryan D. Goldberg and Michael H. Grady consented to the sanctions and cease-and-desist order imposed by the SEC.

The Commission said that between August 2001 and September 2003, Goldberg and Grady placed $1.8 billion in late trades and market timing for Canary and at least four other hedge funds with more than 20 mutual fund complexes, using Bear Stearns as the clearing broker. The scheme earned the two more than $2.1 million in fees.

The SEC also said that the two registered representatives also actively marketed their late trading services to hedge funds to try to win their business.

The SEC had fined both Goldberg and Grady $2.5 million in disgorgement and interest. However, based on the respondents' sworn testimony about their financial conditions, the SEC has waived the entire amount for Goldberg and is charging Grady only $25,000.

The two are barred from working in the industry for three years.

Cease and Desist Against Pritchard for Late Trading

The Securities and Exchange Commission has issued a cease and desist against brokerage Pritchard Capital and three of its executives for allegedly having allowed some of its mutual fund customers to late trade mutual funds between 2001 and 2003. The three named in the suit are Thomas W. Pritchard, managing director of Pritchard Capital, and former executives Joseph J. Van Book and Elizabeth A. McMahon.

The SEC maintains that Pritchard failed to document the timing of its customers' final confirmations of trades and didn't have policies or procedures in place to detect or prevent late trading, and that Thomas Pritchard failed to supervise Van Book and McMahon.

The SEC will hold a hearing on the matter before an administrative law judge.

Evergreen Settles Market-Timing Charges for $32.5M

Evergreen Investments, a unit of Wachovia, settled market-timing charges with the Securities and Exchange Commission for $32.5 million, and former Evergreen Senior Vice President William Ennis also agreed to pay $150,000 to settle related charges.

In January 2000, the SEC said, Ennis permitted a registered rep at Wachovia Securities to market time a few of the Evergreen funds. In the Evergreen Small Company Growth Fund, for instance, the registered rep made 386 exchanges into and out of the fund between January 2001 and March 2003.

Evergreen Chief Executive Officer Dennis Ferro posted a letter on the company's website saying that most of the improper trading took place before 2000, at which time the company improved controls to prevent market timing.

Wealthy Give Dodge & Cox, Blackrock Top Billing

A survey on perceptions of mutual funds by the Luxury Institute, a research organization that caters to the high-net-worth and the companies that serve them, found that Dodge & Cox, Blackrock and Columbia are considered the most prestigious fund families out of a listing of 23 firms.

The survey, conducted online among 1,500 people with an average net worth of $3.4 million and an average income of $329,000, found that the wealthy consider the investment products from Dodge & Cox to be consistently superior in all market conditions and that the firm is especially admired by penta-millionaires.

Many high-net-worth individuals achieved their wealth through their own achievements and are very selective about which firms they invest with, said Milton Pedraza, chief executive officer of the Luxury Institute. "It is amazing how well informed they are about scandal, conflict of interest and lack of transparency, and they rate brands accordingly," Pedraza said. "In these times of market volatility, high-net-worth investors look for trustworthy performers who help them mitigate the downturns and make them prosper in the long term."

Pyramis Hopes to Attract $20B to Long-Short Funds

Pyramis, the institutional arm of Fidelity, is incubating 13 long-short funds and plans to launch four of them before the end of this year, Reuters reports. Over the next five years, Pyramis expects to attract $20 billion to long-short funds.

Pyramis recently launched another alternative investment, a 130/30 fund.

The launch comes at a time when institutional investors are increasingly looking to alternative investments, including hedge funds.

"Over the next five years, we wouldn't be surprised if we build a $20 billion business in long-short strategies," said Young Chin, Pyramis chief investment officer. Pyramis currently manages $158 billion in assets.

"We think that strategies involving shorting are slowly becoming mainstream. So, our strategy here at Pyramis is to build a large platform to complement our long-only strategies, with the view that long-short strategies will have growing interest in the institutional market."

401(k) Expense Ratios Fall To 74 Basis Points: ICI

The asset-weighted expense ratios for mutual funds fell to 74 basis points in 2006, down from 76 basis points the year before, according to the Investment Company Institute. That's far lower than the average 1.5% that all stock funds charge.

"The 401(k) space is a highly competitive space, so you've got not only a whole bunch of mutual funds competing to be in the lineup, but a whole bunch of other products," Sarah Holden, co-author of the ICI report, told the Associated Press.

Large employers are becoming savvier about negotiating lower fees with 401(k) administrators, using the large number of employees in the plan as leverage. "Employers are very actively monitoring and keeping track of the performance that they have in their plan," Holden said.

Morningstar Analyst Christopher Davis agreed: "I think the 401(k) sponsors have gotten a little more diligent in picking good investments. In the case of a 401(k), there are pressures coming from more than one side. You'll have both employers and employees that want lower-cost options. If you look at where a lot of the flows have gone in recent years, they've gone to shops that have lower costs."

Vanguard Planning Three Large-Cap Index Funds

Vanguard is planning to offer three new large-cap index funds, each of which will offer an exchange-traded share class, that will invest in companies with market capitalizations of $3 billion to $500 billion. They will track the MSCI US Large Cap 300 Index and two subsets of the index, one based on growth and one on value.

The three funds are the Mega Cap 300 Index, the Mega Cap 300 Value Index and the Mega Cap 300 Growth Index. The quantitative equity group at Vanguard will oversee the funds, which are designed for advisers and institutional investors.

Other Vanguard index funds that invest in large-cap, large-cap growth and large-cap value include some mid-cap names, said company spokeswoman Amy Chain.

"With large-cap companies apparently beginning to regain some favor on Wall Street, this introduction looks well timed," Daniel Wiener, editor of the Independent Adviser for Vanguard Investors newsletter, told The Wall Street Journal.

Wiener also said that it should help Vanguard compete with other ETF shops that focus on advisers, such as Dimensional Fund Advisors, and that it's likely that Vanguard will increasingly focus on ETFs in the future.

Only Two Funds Merit A+ on Stewardship: Clipper, Selected American

Morningstar released the results of its fourth annual stewardship grades on 1,000 funds, and only two funds, Clipper and Selected American Shares, got a perfect score, indicating that they go far above just obeying the law and obeying industry norms.

A scant 6% of funds got an A, and 24% got a B and 47% a C. Another 20% were given a D and 3% an F.

"We consider the overall investment and sales culture of the fund firm, the quality of a fund's board of directors, manager compensation structure and the extent to which management invests in the firm's funds, the fees the fund charges to investors and the fund firm's regulatory history," said Laura Pavlenko Lutton, senior mutual fund analyst and head of the stewardship grade committee.

Morningstar expanded its stewardship grades this year to double the emphasis it puts on corporate culture from 20% of the grade to 40%, as the mutual fund research firm believes this sets the tone for the other components. In evaluating a fund's board of directors, Morningstar requires that it has an independent chairman and 75% independent directors in order to qualify for independence. Morningstar also is no longer looking at board members' workloads but how effectively they oversee the funds they govern.

Whereas in the past, Morningstar used to look at the trend of funds' fees, it now concentrates on their current expense ratios and how they compare to their peers. Finally, funds with poor regulatory histories lose points.

Baby Boomers to Look for Personalized Services

John M. Trice, market president of Frost National Bank in Corpus Christi, Texas, lays out a number of steps banks can take to reach Baby Boomers in this month's issue of ABA Banking Journal that is sound advice for mutual fund companies looking to win their business, as well.

Besides urging banks to offer products, services and education to help Boomers invest for their retirement and have adequate income, Trice makes the astute and seldom-heard point that Boomers don't want to be treated as if they are old. Financial services institutions must approach this group with respect.

Secondly, Boomers have no patience for automated phone systems that preclude them from speaking with a live financial services representative. As Trice puts it, "Boomers may be the last generation of customers that really want to talk to us without immediately defaulting to e-mail. Put every customer contact person's phone number on your website. Talk to Boomers if you want to keep an edge."

By the same token, Boomers are web-savvy. While young people are busy posting questionable pictures and videos on MySpace, Boomers will appreciate personalized home pages that consolidate all of their financial holdings-banking, investment and insurance-securely and that include "meaningful links to financial advice, health and retirement issues," Trice says. Enable them to videoconference with a trusted adviser over the web.

Finally, because Boomers are going to live a longer retirement than many of their forebears, it's likely that many of them are going to start small businesses, so banks and other financial services firms that are equipped to address the needs of small business owners will come out ahead.

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

http://www.mmexecutive.com http://www.sourcemedia.com

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.