Compliance

KPMG of New York resigned as independent auditor for AIM Funds of Houston last December after the accounting firm discovered it was in violation of auditor independence rules, according to a Security and Exchange Commission filing submitted March 27 by AIM.

A fund's sub-adviser can open new distribution channels, provide investment expertise, lend name recognition and, in some cases, create a conflict of interest, according to industry lawyers and observers.

WASHINGTON, D.C. - Two class action suits involving the use of proprietary funds with in-house pension plans have opened the door for class action lawyers who are likely to go after other mutual fund companies, according to industry lawyers.

WASHINGTON, D.C. - It has been over nine months since E-SIGN, the Electronic Signatures in Global and National Commerce Act, was signed into law, but there remains some uncertainty with regard to how the act governs certain aspects of electronic delivery of retirement products and services, according to industry executives.

The Security and Exchange Commission has proposed changes to rules which govern electronic record keeping.

A decision was overturned earlier this month in the lawsuit Green v. Fund Asset Management, in which shareholders in seven Merrill Lynch funds have sued the company for engaging in fraud with regard to management fees.

Paul G. Murphy, a former vice president of Putnam Investments of Boston, was convicted of one count of conspiracy for his part in aiding another Putnam employee in illegally wire transferring $78,909 from an internal Putnam account to another account at the Vanguard Group in Malvern, Pa. in October of 1999, according to a statement released by the U.S. Attorney's office.

A U.S. District Court order issued late last month placing three of the high-yield municipal bond funds of the Heartland Group of Milwaukee in receivership probably will lead to liquidation of the funds. But it may also be a prelude to new guidance and regulation on fund valuation procedures, according to industry analysts and lawyers.

The Dreyfus Corporation of New York has tentatively agreed to pay $20.5 million to settle a federal class action lawsuit and a state lawsuit which were brought against the fund company in the summer of 1998 by investors in two Dreyfus mutual funds.

A Securities and Exchange Commission rule initiative that was strongly criticized by consumer groups several years ago when it was first suggested has reappeared on the SEC's docket as part of an impending rule proposal expected by June 28.

The Council of the European Union has approved legislation that would allow fund companies to sell in any European Union country, as long as the fund is registered in one of them.

The Securities and Exchange Commission rule regarding fund investments' adherence to a fund's name, rule 35d-1, will take effect March 31. The rule imposes new requirements on the use of potentially misleading or deceptive fund names. Under the rule, investment companies will be required to have 80 percent of the assets of a fund correspond with the name of the fund. The standard had been 65 percent.

Rockies Fund, a business development company (a type of closed-end fund), and its president, Stephen Calandrella, were recently found to have falsely valued the fund's holdings and to have manipulated stock prices. In a decision handed down March 9, Judge Brenda Murray ruled that Calandrella had manipulated the price of the stock of a small costume jewelry store chain, Premier Concepts. Judge Murray also found Rockies Fund had overvalued the fund when it did not discount restricted shares of Premier Concepts stock the fund owned.

PALM DESERT, Calif. - The Securities and Exchange Commission may be searching for a new chairman, but that will not prevent it from pursuing new initiatives, including a new rule proposal it expects to issue by June 30, according to Paul Roye, director of the division of investment management for the SEC.

Joel Goldberg is a partner in the New York office of the law firm of Swidler Berlin Shereff Freedman LLP of Washington, D.C. His clients include mutual funds and advisers. Before going into private practice in 1983, Goldberg was director of the division of investment management of the Securities and Exchange Commission. He will be moderating a panel on SEC inspections and enforcement at the Mutual Funds and Investment Management Conference co-sponsored by the Federal Bar Association and the Investment Company Institute this week in Palm Desert, Calif. Goldberg recently discussed the SEC and its enforcement issues and policies with Mutual Fund Market News reporter Andrew Greene. An edited version of their conversation follows.

John Capone, the chief accountant at the Securities and Exchange Commission, is leaving the SEC March 30 to become a partner with Arthur Andersen of Chicago, he said.

WASHINGTON, D.C. - Market volatility has quickly diminished some funds' returns and may require those funds to advertise more recent performance data than that of the most recent quarter's, said Doug Scheidt, associate director of the division of investment management of the Securities and Exchange Commission.

Fund Democracy, a shareholder advocacy group in Chevy Chase, Md., wants the Securities and Exchange Commission to tighten its policy on granting funds exemptions that remove shareholders' rights to vote on changes of sub-advisers and sub-adviser fees.

PHOENIX, Ariz. - Insurance industry products and variable annuities in particular have always been targets for government revenue-raising measures due to their tax-preferred treatment, according to Stephen Zimmerman, a partner at Dykema Gossett PLLC of Washington D.C. As the new administration settles in, a panel of lawyers discussed legislative issues likely to arise that could affect the annuity industry at the National Association for Variable Annuities marketing conference held here last month.

The Securities and Exchange Commission's most recent letter to industry CFO's warns investment advisers and managers against falsely claiming that their performance history is in compliance with industry standards.