Compliance

Some states are unfairly discriminating against investors choosing to invest in 529 college savings plans outside of the state in which they reside, creating mounting problems for the industry, according to a recent white paper by the College Savings Foundation (CSF).

For mutual funds, it was the shot heard round the world.

Rep. Paul Gillmore (R-Ohio) has introduced a companion bill in the House to the Mutual Fund Reform Act sponsored by Senator Peter Fitzgerald (R-Ill.) in the Senate. A companion bill is similar or identical to another piece of legislation introduced in the opposite house of Congress. Fitzgerald's bill aims to ban 12b-1 fees and improve disclosure on mutual fund fees so that consumers can more easily compare what they pay for competing funds.

Morningstar Managing Director Don Phillips has been a visible industry figure since the scandal broke, calling for investors to avoid certain shops entangled in the scandal as well as urging the industry to adopt several reforms. MME Associate Editor Chris Frankie sat down with Phillips just before the Morningstar Investment Conference to get his views on the ICI's new president, Congress and investors.

SEC Commissioner Cynthia Glassman last week said she is not sold on the agency's rule proposals requiring an independent chairman and the implementation of a mandatory redemption fee.

ICI President Paul Schott Stevens said last week that his agency is firmly behind reform in the industry and called on the SEC to "administer strong medicine to prevent trading abuses in the future."

The former CEO of Putnam Investments, Lawrence J. Lasser, has settled his severance package dispute with the company and will receive $78 million from the parent firm, Marsh & McLennan.

Securities Industry Association President Mark Lacritz warned that the mutual fund and corporate scandals and resulting new compliance requirements have put both technology and financial services firms in a touch spot, he told 700 delegates at the annual SIA technology management conference in New York.

Charles Schwab CEO David Pottruck said he expects scandals afflicting the financial services industry to continue. "There will continue to be new investigations and new revelations. There are still things to find in this industry," Pottruck told a business conference in New York. While declining to elaborate on his statements, he said the industry still employs questionable practices.

The notion that the fund scandal is all but over has been gaining steam in the general press and among some in the industry recently, but the reality is that while it has been a long, hard nine months, the mutual fund industry is far from out of the woods. Disinterest should not be mistaken for inactivity.

They were seven and they fought like seven hundred. That was the famous tag line of the classic 1960 western film "The Magnificent Seven," a tale about a septet of mercenaries called on to protect the inhabitants of a small village from being pillaged by outlaws.

Schwab Institutional's assets under custody grew 4.5% in the first quarter, and the company's president said the industry's scandals and investigations played a role in some of the asset gains.

WASHINGTON - Insurance companies are soon to find enforcement actions against them aired for all to see. The Securities and Exchange Commission is working on cases in which insurers made special arrangements for market timing, according to Ari Gabinet, district administrator of the SEC's Philadelphia District Office. "You may expect to see more cases rising up," he told attendees at the Regulatory Affairs Conference sponsored by the National Association of Variable Annuities.

Davenport & Co., a Richmond, Va.-based brokerage firm, market timed variable annuity sub-accounts on behalf of two of its hedge fund clients, the National Association of Securities Dealers charged last week, ordering Davenport to pay $450,000 for improper trading.

Score one for the fund managers.

Former vice presidential candidate Sen. Joseph Lieberman (D-CT) is asking lawmakers to create a new SEC division dedicated to representing investors in the agency's policymaking process, as well as require fund firms to provide easy-to-understand disclosure of fund characteristics.

The Securities and Exchange Commission recently voted to require mutual funds to disclose breakpoint discounts in their prospectuses and to adopt codes of ethics. On each measure, the vote was 4-0.

The Securities and Exchange Commission is reportedly planning to launch an enforcement action against Empire Financial Holding Co. and its Chairman and Chief Executive Officer Kevin Gagne. Empire, which confirmed receiving a Wells notice of forthcoming regulatory enforcement, has a small window of time to construct a response before the SEC commits to a course of action. Gagne has recently taken an unpaid leave of absence until the matter is resolved.

When it comes to mutual fund reporting, transparency is the name of the game.

NEW YORK - In between good-natured gags about the "angularity" of his jaw line and quotes from Homer Simpson, New York Attorney General Eliot Spitzer told financial journalists here that despite record-breaking fines and penalties, the financial world is doomed to repeat its mistakes.