Compliance

Four years ago, the board of directors of the Gabelli Funds conducted a thorough investigation into charges by the Securities and Exchange Commission that market timing had occurred in its funds, according to a press release the invesment manager issued on behalf of one of its former principals who is now under investigation.

subprime crisis

Looking at the current economic landscape, we know the challenges our industry faces today may be like storms we have weathered in the past. Challenges often become catalysts for important changes in regulation, technology and business practices.

Securities and Exchange Commissioner Paul Atkins has announced he will leave the agency when his term expires in June to return to the private sector.

WASHINGTON - As regulatory burdens increase, mutual fund boards of directors' attention to the real business at hand-sound asset management and fiduciary responsibility to the end investor-is conversely being depleted, industry heavyweights attested, speaking at the Investment Company Institute's 50th Annual General Membership Meeting here last Thursday.

WASHINGTON - The credit crisis is 75% to 85% unwound in terms of the financial markets, but the economy may still be on shaky ground, Jamie Dimon, chairman and CEO of JPMorgan Chase told the 1,500 delegates assembled here for the Investment Company Institute’s 50th GMM.“I would say this thing has largely already worked its way through. It probably won’t get worse at this point. Increased capital requirements will take about six months longer” to bring markets and counter-party risk tolerance back to normalcy, Dimon said.However, he was quick to add: “The recession, I don’t know. To paraphrase Yogi Berra, it’s tough to make predictions, especially about the future.”Markets perform in cycles, Dimon reminded executives, listing the 2001 technology bubble, Long Term Capital Management’s overleveraged exposure to Russia in 1997, the real estate and savings and loan crisis of 1990, overvalued earnings in 1987 and the subsequent stock market crash, the recession of 1982 and the oil shortages in 1974.
“The difference in this one is it’s a housing crisis,” said Dimon, who included among those to blame for the subprime crisis those mortgage bankers who failed to properly verify borrowers’ income or appraisers’ real estate assessments.Dimon also praised the government for its swift action in bailing out Bear Stearns and a cadre of more than 1,000 investment bankers at his own firm who, after he got “the Thursday telephone call” about whether or not to purchase the ailing firm, spent the entire weekend performing due diligence on the deal.In answer to a question from an audience member, Dimon exhorted mutual fund executives to continue to bring innovative products to market but to be extremely cautious when doing so.As an example, Dimon said, collateralized debt obligations, CDO warehouses and structured investment vehicles that invested in subprime mortgages are so complex that to try to assess the price in one such instrument, JPMorgan ran a Monte Carlo simulation on one of its mainframe computers for seven hours.Questionable mark-to-market policies also factored into the subprime troubles, he added. But that said, Dimon said he is tired of being “vilified” by the media for bailing out Bear Stearns or operating a bank that itself sold subprime mortgages and products derived from them. And as to banks’ role in making credit and loans too available to the American public, Dimon stressed that the consumers of subprime CDOs and other structured products over the past two years, have largely been institutional and not retail investors.The ICI booked Dimon’s appearance many months ahead of JPMorgan’s recent preeminent role in partnering with the government on the Bear Stearns deal, noted Edward Bernard, chairman of the ICI’s General Membership Meeting Planning Committee, and vice chairman of T. Rowe Price Group.“We thank Mr. Dimon for honoring his commitment” at this exceptionally busy time, Bernard said.

WASHINGTON - Regulators, employers and the financial services industry must work together to expand the use of 401(k) plans and increase worker participation, the Investment Company Institute's President and CEO Paul Schott Stevens said Wednesday at the institute's 50th annual general membership meeting.

Legg Mason, citing $206 million in charges tied to supporting money market funds with subprime and other illiquid fixed-income exposure, posted a net loss of $256 million in the first quarter, down from profits of $173 million in the year-ago period.

Former AllianceBernstein mutual fund sales manager John Carl won a $12 million arbitration lawsuit for having been dismissed from the company on the pretext of his role in the market-timing scandal.

Securities and Exchange Commissioner Paul Atkins has announced he will leave the agency when his term expires in June to return to the private sector.

The turmoil in the $330 billion auction rate securities (ARS) market has spurred a series of investigations by the Securities and Exchange Commission, the Financial Industry Regulatory Authority (Finra), and Massachusetts securities regulators. Congressional leaders are calling for relief, allowing mutual funds to provide liquidity to retail investors holding the securities.

A Federal appeals court yesterday upheld a 160-month, or 13-year, three-month, sentence for stockbroker and frequent CNN guest Todd Eberhard.

Pointing to illiquidity and poor fair valuation conditions, two ranking Congressmen have asked Securities and Exchange Commission Chairman Christopher Cox to cut mutual fund portfolio managers a break on redemptions of auction-rate securities.

The Securities and Exchange Commission has filed a settlement enforcement action against Bank of America’s Banc of America Investment Services Inc. for failure to disclose it favored two mutual funds.

The Financial Industry Regulatory Authority’s National Adjudicatory Council yesterday upheld FINRA’s 2006 decision to fine American Funds Distributors $5 million for directing traders—worth $98 million in brokerage commissions—between 2001-2003 to 46 broker/dealers that sold its family of 29 mutual funds.

WASHINGTON - The Office of the Comptroller of the Currency's $144 million enforcement order against Wachovia Corp. is likely to force banks to step up oversight of telemarketing customers.

At the Securities and Exchange Commission's meeting on April 17 and 18 in Washington, D.C., open only to chief compliance officers, SEC chief examiner Gene Gohlke announced that mutual funds can now add forensic testing to their SEC exam checklist of funds' own annual internal compliance reviews.

NEW YORK - As the world economy becomes increasingly connected, communicating important financial information, such as income statements, cash flow, balance sheets and mutual fund returns, would be all but impossible without a common language.

The Securities and Exchange Commission has announced the distribution of $30.6 million to more than 250,000 investors affected by market timing by RS Investments.

WASHINGTON—Treasury Secretary Henry Paulson met in private with top lenders and servicers this week to warn them the housing market is continuing to deteriorate and press them for a new solution, several sources said Thursday.