Compliance

The Securities and Exchange Commission has shut down two illegally run mutual funds and the FBI seized records and data from the Linville Group, the company that ran the funds, according to a SEC official.

A district court judge in Connecticut issued an emergency order earlier this month freezing the assets of Ian Renert and Hawthorne Sterling & Company, an unregistered investment adviser in Wilton, Conn., according to the SEC.

Putnam Investment Management of Boston has settled a lawsuit brought against the firm's top executives as well as its mutual fund trustees by The Commerce Group, an insurance holding company in Webster, Mass.

Although the 401(k) market appears saturated and assets shrank in 2000, new legislation recently passed in Congress should bring in new assets, requiring fund companies to double their efforts at marketing to plan sponsors, according to analysts in the retirement industry.

WASHINGTON, D.C. - The Securities and Exchange Commission may drop a new rule requiring funds to report after-tax performance figures if a proposal to allow investors to defer a portion of capital gains taxes on their fund investments becomes law, said Paul Roye, director of the SEC's division of investment management.

Washington, D.C. - The possibility that actively-managed exchange-traded funds could cause market volatility is one of the issues to be addressed in a concept release' that the Securities and Exchange Commission expects to issue in the next few months, according to Paul Roye, director of the SEC's division of investment management. Roye discussed the SEC's active exchange-traded fund concept release at the general meeting of the Investment Company Institute of Washington D.C. here earlier this month.

New rules issued last week by the Securities and Exchange Commission outlining bank exemptions to the Gramm-Leach-Bliley Act may have important implications for the fund industry, particularly for no-load fund fees.

A no-action letter issued by the Securities and Exchange Commission last month gives some evidence of how the SEC views affiliated transactions with regard to fund companies, according to Alan Rosenblat, a lawyer with Dechert of Philadelphia. The issue of affiliated transactions is one the Investment Company Institute of Washington D.C. has sought guidance on from the SEC for some time, according to Rosenblat.

It is too early to speculate what impact Harvey Pitt, President Bush's designee for chairman of the Securities and Exchange Commission, will have on the mutual fund industry. Those assessments will only come after the corporate lawyer begins to take action on what will be a full agenda, according to analysts.

Harvey Pitt has been selected by President Bush as the new chairman of the Securities and Exchange Commission, according to a report last week in The New York Times. However, the SEC and the White House would not confirm that report.

Recommendations outlined in the Securities and Exchange Commission's April 30 valuation letter will create logistical challenges for small- and mid-sized fund companies and raise questions as to when fund boards should use fair value pricing, according to industry lawyers and observers.

The Internal Revenue Service has denied the request of the Investment Company Institute of Washington, D.C. to include the tax treatment of fund launch costs in its 2001 Priority Guidance Plan to finally resolve the issue. The ICI still hopes the issue will be considered this year, but it is clear that since the IRS left it out of its business plan, it is not one of its top priorities.

Efforts on the part of the Vanguard Group of Malvern, Pa. to develop an exchange-traded share class may have been defeated last week after a U.S. District Court decision prohibited Vanguard from offering the new share class using its S&P index funds, according to industry observers.

NASD Regulation, the regulatory arm of the National Association of Securities Dealers of Washington, D.C., announced last week that it had censured and fined asset manager Stifel, Nicolaus & Company of St. Louis and two individuals in connection with the illegitimate sale of class B mutual fund shares.

The fund industry is concerned that evolving interpretations of the act which authorizes the use of electronic signatures in commerce will inhibit the mutual fund industry's use of the Internet. The Investment Company Institute outlined its concerns in a letter to the Federal Trade Commission last month.

A lawsuit filed April 2 in a Delaware state court could decide if a closed-end fund's board of directors acted properly in setting strict guidelines as to who qualifies for nomination as a fund board director, or if the guidelines were established to thwart shareholder activism and impede investors' rights.

President Bush's budget proposal for fiscal year 2002 proposes staff reductions in several areas of the Securities and Exchange Commission, including in the office of investment management which oversees mutual funds, according to an SEC document.

The first wave of privacy disclosures are appearing in mutual fund prospectuses and first quarter 2000 account statements being mailed to fund investors.

The Investment Company Institute of Washington D.C. has taken the unusual step of submitting a follow up letter to an earlier request that the Securities and Exchange Commission regulate portfolio products like mutual funds.

Laura Unger, acting chairman of the Securities and Exchange Commission, announced in a speech before the Philadelphia Bar Association late last month that the SEC's staff is working on an interpretive bulletin which will emphasize that technical compliance with Rule 482, the advertising rule, will not protect firms from charges of fraud. Unger said the bulletin will also point out that it may be necessary to provide investors with additional facts, which give investors an accurate picture of a fund's performance in order to avoid running afoul of anti-fraud provisions.