Compliance

After filing over 80 disciplinary actions in the past two years, the National Association of Securities Dealers is tightening its noose on the variable annuities industry. Late last month, the regulator proposed new rules for variable annuity sales that would increase disclosure and make best-practice guidelines mandatory and enforceable.

It's going to be a lot easier to bring products to market in the near future. Or is it?

The hits just keep on coming.

Ever wish you were somebody else? Well, thieves have been making it happen at a more rapid pace, hijacking the identities of mutual fund customers and other patrons of the financial services industry and reeking havoc at an alarming rate.

Putnam Investments last week announced it is improving the fee disclosure in Putnam CollegeAdvantage, the 529 plan it runs in Ohio, and also reducing the plan's annual maintenance fee.

Have you wondered what will become of the rapscallions who are guilty of ripping off mutual fund investors?

Traditionally, bulge-bracket firms have given away research in exchange for trading volume and high trading commissions. The commissions paid for part of the research, while investment-banking fees paid for the rest. Over time, Wall Street firms built up expensive operations, flush with highly paid salespeople and large travel and entertainment budgets.

The corporate makeover at Janus Capital continued last week as CEO Mark Whiston, 42, quit and was replaced by board chairman Steve Scheid, 50.

The $675 million price tag agreed to by Bank of America and FleetBoston to settle charges in the mutual fund scandal was extremely high, but the companies agreed that expeditious handling of the charges was paramount to closing their merger, the vice chairman of BoA said in a recent CNBC interview.

Canadian Imperial Bank of Commerce is facing a class-action lawsuit in relation to the market timing scandal battering the mutual fund industry. The suit, filed by New York law firm Milberg Weiss Bershad Hynes & Lerach, claims CIBC facilitated the illegal late trading conducted by MFS and helped defraud investors. It spans from 2001 to 2003. Also named in the suit is Paul Flynn, the former CIBC managing director of equity investment accused of providing financing for hedge funds that engaged in the late trading and timing activities. CIBC has yet to file a statement of defense.

Bank of America employees will have to sign a revised code of ethics document as a result of regulators' probe of improper trading at its mutual fund unit.

The SEC voted unanimously last Tuesday to adopt measures to improve the transparency of mutual funds and variable annuities. Beginning Dec. 5, all funds must now disclose what risks, if any, market timing poses for their funds, as well as reveal in their fund prospectuses whether their board has adopted rules against market timing. Should a board have decided such rules are not necessary, it must spell out its reasons why.

The Securities and Exchange Commission sure does talk a tough game, but when it came to its settlement with Putnam Investments of Boston earlier this month, the agency was speaking in whispers.

The indictment of former Bank of America broker Theodore C. Sihpol, III last week should sound the alarm for fund executives that those criminally charged in the scandal could spend years locked up with murderers and rapists.

Lars Soderberg, executive vice president of institutional services and member of the management committee at Janus Capital, has agreed to take a leave of absence from the company. In the mean time, Janus said, it "will continue to evaluate Soderberg's future role with the company, in light of the ongoing investigation of the mutual fund industry and related regulatory matters."

Massachusetts Financial Services last week agreed to pay a $50 million fine to the SEC for not disclosing directed-brokerage agreements, marking the first time the SEC has penalized a fund company for failing to disclose its trading arrangements with brokerage firms in exchange for promoting its funds.

The SEC is going to be paying closer attention to abnormal buying and selling in mutual funds. Cash flow is one area that will get heightened scrutiny.

With a potentially groundbreaking governance proposal pending, requiring an independent chairman, there's been a lot of bickering in the mutual fund industry about how to address conflicts in the boardroom.

Putnam's woes are far from over as federal regulators are swinging for the fences and are poised to ask a judge to punish the firm more severely than any company mired in the scandal so far.

The high price of not keeping up with regulatory demands is well documented, but some in the fund industry are growing increasingly concerned about the growing costs of implementing new measures to keep up with a steady stream of proposed requirements.