Compliance

Mutual fund managers who invest in companies with strong corporate governance profiles produce better long-term returns.

CINCINNATI - Although the Investment Company Institute successfully stalled the Baker Bill last spring, Congress is likely to pass and the President Bush is likely to approve the third piece of legislation in the history of mutual funds, ICI President Matthew Fink told the Greater Cincinnati Mutual Funds Association.

In this game of high-stakes "tag," there are no more hiding places and lots of "Its."

Even before Fundgate took the industry by storm, critics were calling into question the use of 12b-1 fees. And now regulatory action appears imminent.

A former attorney turned Las Vegas hedge fund manager has reaped the biggest gains so far in the unfolding mutual fund scandal, the SEC charged.

My primary concern remains that Congress, and to a lesser extent the SEC, will rush forth some "cure-all" measures, rules, regulations and laws that are poorly conceived, perhaps along the lines of Sarbanes-Oxley.

Roy Weitz, publisher of fundalarm.com, and Jack Bogle, founder, Vanguard Group, faced off last May on some of the problems the two outspoken critics have found rife in the industry (see inaugural issue of Money Management Executive 5/19/03).

The mutual fund scandal took a surprising turn last week when Alliance Capital Management agreed to lower management fees on its funds as part of a landmark $600 million settlement that could set an alarming precedent.

The scandal of 2003 is such a pivotal event since the advent of the mutual fund industry in 1940 that there are two salient facts about it that will undoubtedly be remembered in years to come. Its magnitude and its stealth.

It's your worst nightmare come true. Regulators called yesterday to inform of their investigations into your firm's practices, and already some of the toughest news reporters in the industry have called for comments --some more than once. You are still trying to absorb the information, figure out what's what and find out who did what, when, and why?

To restore industry confidence and nudge investors' interests back to the forefront, the Investment Company Institute told the SEC last Monday it supports the curtailing of soft dollars and banning of "directed brokerage." Commenting on the proposal, ICI Chairman Paul G. Haaga, Jr. said the proposed changes would "benefit fund investors by substantially diminishing potential conflicts of interest and strengthening the operating integrity of mutual funds."

(Reprint from 12/9/02 MFMN)

If we were to stage a "Best of" show about the year's impact on job prospects, Eliot Spitzer would be a good choice to serve as our affable host. And you, as a compliance professional, would no doubt have a chance to walk up to the stage, collect your trophy, and give the New York Attorney General your personal thanks for improving your job prospects tenfold.

Not all scandals are created equal. As such, Invesco Funds is apparently digging in its heels and preparing for a dogfight with regulators, a stark contrast to the "yes siring" going on at firms accused of more outrageous activities.

Noreen Harrington, a former executive of the Stern Asset Management arm of the Hartz Group, identified herself as the initial whistleblower in the mutual fund scandal that has ravaged the industry, according to reports.

Mutual fund managers are tipping their caps to interim chief John Reed as the New York Stock Exchange preps itself for a makeover. But industry lobbyists suggest that the proposed governance structure fails to provide adequate representation.

New York Attorney General Eliot Spitzer arrested three former executives of Security Trust Co. on felony charges last Tuesday. His suit charges the men with grand larceny in the first degree, for stealing more than $1 million.

Morningstar has recommended that investors dump shares of 11 PBHG funds after its founders were charged with securities fraud for allowing two of the firm's clients to trade billions of dollars in and out of its funds.

Viewed as watchdogs by some and lapdogs by critics, mutual fund boards have arguably seen their responsibilities grow alongside the complexity and demands of the business. Directors have recently come under fire as a result of Eliot Spitzer's probe into fund trading, as they were presumably unaware of the violations. Questions of board due diligence and the adequacy of the governance structure obviously emerge.

Alpine Management & Research, Purchase, N.Y., has introduced a unique dividend-paying fund that it claims is more active than many new offerings designed to take advantage of the latest tax laws favoring qualified dividends.