Compliance

The Securities and Exchange Commission has issued an adopting release that formalizes an amendment to Rule 12b-1 that prohibits funds from selecting broker/dealers for portfolio transactions based upon their sales of mutual funds. Fund companies must comply with the order by Dec. 13. Funds are not banned outright from choosing a broker/dealer that sells its funds to execute portfolio trades. Instead, the SEC requires that funds ensure selling agreements do not influence that decision.

Three firms affiliated with PIMCO equity funds agreed to pay $50 million to settle fraud charges related to a market-timing scheme that bilked long-term shareholders.

Charles Schwab & Co. agreed last Tuesday to pay $350,000 to settle charges that it improperly permitted investment advisor customers to alter mutual fund orders after the closing bell.

NEW YORK -- Using 12b-1 fees to pay brokers for selling mutual funds has morphed the fund business into a massive marketing machine, a development that has sparked controversy over the best way for fund companies to finance distribution.

The Securities and Exchange Commission said it would forge ahead with a new rule effective January 2006 requiring 75% of mutual fund boards to be comprised of independent directors and overseen by an independent chairman. The U.S. Chamber of Commerce sued the SEC on Sept. 2, charging that it had overstepped its rulemaking authority.

Amvescap, the London-based parent of Invesco Funds and AIM Advisors, said last week it has agreed to a $451 million settlement with several regulators, including $75 million in reduced fees, to resolve charges of improper trading activity by the sister shops.

What a difference a year makes.

Three former Invesco executives agreed to pay a combined $340,000 in fines to settle enforcement actions for their role in a market-timing scheme that allowed preferred clients to make excessive trades in exchange for sticky assets.

The long-awaited and much maligned deadline for mutual funds to disclose how they vote their proxies came and went last week as investors for the first time were given a peek at decisions on such matters as executive compensation and boardroom elections.

The Securities and Exchange Commission filed civil charges against broker/dealer National Clearing Corp. (NCC) and its parent company, JB Oxford Holdings (JBOH), for allowing customers to engage in late trading and improper market-timing activities. According to the SEC complaint filed in the U.S. District Court of Los Angeles, each of the defendants facilitated thousands of market-timing and late trades in more than 600 mutual funds between June 2002 and Sept. 2003.

Franklin Resources said in a regulatory filing that it may be in trouble from the state of California for revenue-sharing payments made to brokerage firms. California Attorney General Bill Lockyer told the company that enforcement action would be authorized, Franklin said. The news comes seven months after Lockyer announced a deep look into revenue sharing between mutual funds, including Franklin, and brokers.

It's time for fund companies to show their hands.

A former Canadian Imperial Bank of Commerce employee currently serving a two-year conditional sentence for committing a $20 million fraud involving mutual fund clients has been sentenced to one year in jail by a Canadian court.

In a new study, Financial Research Corp. predicts new SEC regulations will lead to a major shakeup for the mutual fund industry. FRC indicates that some mutual fund companies could pass on the costs of new regulations prompted by the far-reaching investment scandals by increasing shareholder expenses up to $125 per year.

Federal securities regulators churned out two more mutual fund reforms last week as directed-brokerage practices were officially junked and portfolio managers met with new standards for disclosure.

In the midst of the largest scandal in its 80-year history, and as a spate of new regulatory requirements gets underway, the mutual fund industry faces a major overhaul in the way it distributes funds.

WASHINGTON -- While the annuity industry remains hush-hush on the topic of the market-timing cases being brought by the Securities and Exchange Commission and the New York Attorney General, this silence does not indicate a lack of opinion. Speakers and attendees alike voiced their views on the brewing market-timing trouble and regulatory implications for the variable annuity industry here at the Regulatory Affairs Conference sponsored by the National Association for Variable Annuities of Reston, Va. And the consensus was that preventing market timing in annuities is more complex than preventing it in mutual funds.

For its alleged part in a market-timing scheme, Van Eck Associates, which advises the Van Eck Funds, and two of its executives may be facing Securities and Exchange Commission charges, the company indicated in a filing. The news is far from surprising, since the firm has a lot of international funds that trade in different time zones. As the latest in a long list of high-profile companies named in the scandal, including Putnam Investments and Janus Capital, the announcement by Van Eck represents another step down in what seems to be a never-ending stairwell of charges. As Morningstar Director of Fund Analysis Kunal Kapoor put it, "It's been more widespread than most folks would have imagined."

The Securities and Exchange Commission hit Angelo Haligiannis and his Sterling Watters Group hedge fund with an emergency enforcement action for lying to investors about performance, complete with false documents, prospectuses and marketing materials. The fund's general partners, Sterling Watters Capital Advisors and Sterling Watters Capital Management, were also named as defendants.

Following the Mutual Fund Directors Forum's "best practices" could spell a bad reality for investors, a number of independent research firms argue in a letter to the Securities and Exchange Commission.