Regulation

Spitzer Probe Could Derail Janus Capital's Rebound

Sarbanes what? The landmark legislation passed last year in response to rampant accounting misdeeds has disappeared from the headlines but continues to be a thorn in the side of fund executives and accounting personnel.

It's open season on the mutual fund industry, as New York State Attorney General Eliot Spitzer's probe of mutual fund trading practices has triggered a barrage of investor lawsuits.

Tongues are wagging and fingers are pointing.

Fear and greed are what drives Wall Street. Just because the mutual fund industry serves the higher calling of providing for the retirement security of 95 million Americans, it appears to be no better than the next hypocritical analyst, commission-hungry trader or manipulative investment banker. Greed is greed. Even in the fund industry.

The Securities and Exchange Commission reportedly is considering subjecting hedge funds to routine inspections. The SEC is particularly interested in reviewing hedge funds' trading strategies, although the SEC reportedly does not want to publicly disclose these trading strategies. The SEC is expected to release the findings of its investigation of the $600 billion hedge fund industry by the end of this month or early next month.

Since Sept. 11, 2001, governments in the U.S. and abroad have moved aggressively to combat the problem of money laundering and terrorist financing at financial institutions. To this end, Title III of the USA Patriot Act introduces many new classes of financial institutions to many of the same anti-money laundering (AML) control requirements that banks have had to comply with for many years under the Bank Secrecy Act and other laws.

The requirements of the Sarbanes-Oxley Act and subsequent SEC rules have significant implications for the responsibilities of fund audit committees, the way they do business and the qualifications of their members. Not only did the act formalize measures to safeguard the independence of outside auditors, it redefined the role of fund audit committees in assuring transparency, and thus accountability, to shareholders. No less than in years past, the quality of a fund's financial reporting depends upon close and effective coordination among management, the audit committee and the audit firm. Sarbanes-Oxley altered, however, in crucial respects, the rules of engagement.

In the first of a long series of arbitrations through the National Association of Securities Dealers, a panel has awarded around $110,000 to an investor who had been sold variable annuities by John Steven Blount, a former broker for New York Life Securities. Blount has 97 customer complaints on record with the NASD, with the bulk of those pending arbitration.

The Securities and Exchange Commission's move to require fund advertisements to disclose a fund's most recent month's performance as well as a toll-free number or Web site where they can view up-to-date figures may soon become a reality. Paul Roye, director of the division of investment management at the SEC, said the commission might make this a rule by September or October. Two other proposals could be passed by November, Roye added. The first would require funds to disclose fund fees in dollar amounts for a $10,000 investment over the past six months, and the second would require funds to disclose their holdings on a quarterly rather than on a semi-annual basis. Funds would have to disclose the holdings within 60 days after the end of a quarter.