Compliance

Four fund firms that manage closed-end funds were sanctioned and fined a collective $1.7 million on Sept. 28 by the Securities and Exchange Commission for not properly disclosing the true nature of shareholder distributions made under their fund's managed distribution plans.

Fines, being barred from the industry and even facing years behind bars evidently won't deter some market timers looking for a quick, sure buck.

The President's Working Group on Financial Markets will form two private-sector groups to develop best practices for the hedge fund industry, and while it comes far short of requiring hedge funds to register with the Securities and Exchange Commission, this is welcome news, both for investors and the market.

The Securities and Exchange Commission has charged five former portfolio managers of two registered investment advisory firms, LP Advisors and Freedom Capital, with allowing hedge fund clients to late trade mutual funds in 2002 and 2003. The five are David Byck, William Cole, Charles Irwin, Michael Price and Jay Sumner.

The President's Working Group on Financial Markets will form two private-sector groups to develop best practices for the hedge fund industry, and while it comes far short of requiring hedge funds to register with the Securities and Exchange Commission, this is welcome news, both for investors and the market.

Of the 14 regulations that came out of the mutual fund trading scandal, the two most important were the creation of a chief compliance officer and the requirement that three-quarters of a fund's board of directors, including its chairman, be independent.

Four years after securities regulators sued five former brokers at Prudential Securities for extensive improper mutual fund trading, Justin Ficken, never considered the most notorious trader in the scandal, is facing the largest monetary penalty out of everyone, according to the Newark Star-Ledger.

The Securities and Exchange Commission has revised its examination hotline system, at 202-551-EXAM, following a 38-page Government Accountability Office study analyzing its examination procedures.

Of the 14 regulations that came out of the mutual fund trading scandal, the two most important were the creation of a chief compliance officer and the requirement that three-quarters of a fund's board of directors, including its chairman, be independent.

Full-page newspaper ads or mailed invitations hyping financial seminars for seniors often are dubbed "educational" and "workshops."

When Peter Scannell appeared before Congress to testify about market timing at Putnam Investments, he hardly appeared the picture of a valiant hero. Scannell was somewhat incoherent, his written testimony riddled with misspellings, according to one of our reporters who was there.

Three former top executives at mutual fund advisory and broker/dealer firm Mutuals.com of Dallas, are reportedly in settlement negotiations with the United States Attorney for the Southern District of New York over criminal securities and wire fraud charges dating back three years.

When Peter Scannell appeared before Congress to testify about market timing at Putnam Investments, he hardly appeared the picture of a valiant hero. Scannell was somewhat incoherent, his written testimony riddled with misspellings, according to one of our reporters who was there.

The Securities and Exchange Commission settled its civil lawsuit against hedge fund Durus Capital Management and its principal, Scott R. Sacane, on fraud charges. The judgment includes injunctions against future violations of the federal securities laws.

BISYS Fund Services may be all but history now with various servicing units having been parceled out to other acquiring firms. But troubles are still brewing among at least some of the 27 mutual fund clients that the firm had questionable distribution arrangements with dating back to the 1990s. And now, fund advisors are opening their wallets in an effort to make investors whole.

The U.S. House of Representatives overwhelmingly passed two bills that would prevent lawsuits against mutual and pension funds that divest holdings in companies that are doing business in Darfur and Iran.

Globalization may be coming in baby steps. In the effort to move to a single, universal financial reporting standard, the Securities and Exchange Commission voted unanimously last month to open for public comment a proposal to allow U.S. companies-including investment companies-to use International Financial Reporting Standards (IFRS) for their SEC filings, rather than U.S. Generally Accepted Accounting Principles (GAAP).

Relaxation of Sarbanes-Oxley audit and reporting rules passed unanimously by the Securities and Exchange Commission last month may address the burdensome compliance costs of the law that companies-especially small ones-complained about, but it probably won't be enough to reverse the small-cap slide.

While we will certainly give credit to Eliot "The Steamroller" Spitzer for taking on illicit trading and sales activities in the mutual fund industry while he was New York attorney general, we wondered why, when he was running for governor, he accepted hundreds of thousands of dollars from hedge funds, which, after all, were at the heart of the scandal. It's entirely possible some of the funds that showered Spitzer with money conducted market timing or late trading. That would make his acceptance of their contributions a serious conflict of interest and, possibly, a tacit agreement not to indict them.

Citigroup's Smith Barney division has agreed to pay $50 million to settle market-timing charges by the New York Stock Exchange and New Jersey regulators. Of the $50 million total, $40 million will go to investors who were harmed by the activity.