Compliance

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.

Mutual fund shareholders' woes stemming from revelations of endemic misconduct has amounted to a windfall for investment bankers. The pace of consolidation within the asset management industry continues to accelerate under the weight of massive regulatory investigation, according to a new study by Putnam Lovell NBF Securities.

The debate over soft dollars nearly erupted into a barroom brawl on Capitol Hill last week, as the Senate Banking Committee held an open hearing on the much-maligned practice of mutual funds using brokerage commissions to pay for research and overhead costs.

PALM DESERT, Calif. - A culture of compliance and dedication to long-time shareholders has to be priority No. 1 for mutual funds. That was the consensus of a number of high-profile industry professionals at the annual Investment Company Institute Mutual Funds and Investment Conference last week.

Tripping over Federal securities regulations can bring a mutual fund advisor to its knees. But running afoul of state securities divisions can also be painful.

AIM Investments has stepped up efforts to publicly disclose its directed-brokerage activities and allocation of marketing fees. Newly drafted prospectus supplements filed with the SEC clearly outline the fund provider's intent to reveal non-binding sales goals with third-party brokerage firms and other potential investment distributors, a move lauded by shareholder advocates but implemented by very few asset managers.

Putnam Investments is cracking down on the perks brokers use to entice fund managers and other executives to give them their business.

Soft-dollar advocates are going to have a harder time pleading their case.

Board members beware. In addition to racking up a gargantuan $675 million settlement with Bank of America and FleetBoston Financial last week, regulators made it clear boards are fair game, as it ousted eight of the 10 directors of the beleaguered Nations Funds board.

The search is over.

The U.S. Attorney's office has filed criminal charges against three Mutuals.com executives, charging them with helping hedge funds deceive mutual fund companies by hiding their market-timing activities in separate accounts. Mutuals.com Chief Executive Officer Richard Sapio, President Eric McDonald and Chief Compliance Officer Michele Leftwich face up to five years in prison. This is the first time that federal, not state, regulators have filed criminal charges in the ongoing market-timing and late-trading investigation.