Compliance

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.

Sloan Financial Group of Durham, N.C. has filed a lawsuit against a former employee charging him with breach of contract, committing fraud and conspiracy, and embezzling funds while he managed The New Africa Opportunity Fund, a $120 million private equity fund that was introduced in 1997.

The U.S. House Financial Services subcommittee on capital markets, insurance and government-sponsored enterprises, chaired by Rep. Richard Baker (R-La.), will review securities-disclosure rules this year, Baker announced last month. Among those to be reviewed will be the "Regulation Fair Disclosure" that the Securities and Exchange Commission adopted last year.

AIM Management Group, the Canadian operations of AIM Funds of Houston, announced that it has settled out of court a lawsuit it brought against a former employee, Derek Webb, and C.I. Fund Management of Toronto, according to a joint release from the companies. The terms of the settlement are confidential, the companies said.

Mutual fund shareholders are increasingly wary about taxes on their investments and say that taxes are an important investment consideration, according to a recent survey.

President Bush has designated Laura Unger acting chairwoman of the Securities and Exchange Commission, replacing Arthur Levitt who stepped down Feb. 9.

The recent decision of The Investment Company Institute, the industry trade group in Washington, D.C., to report exchange-traded fund flows is significant because it marks the industry's acceptance of a non-traditional fund product and could promote wider acceptance of the product, according to industry analysts.

NEW YORK - The after-tax disclosure regulations that were recently adopted by the Securities and Exchange Commission have several major flaws which will potentially hurt, not help, fund shareholders, according to Matthew Fink, president of the Investment Company Institute, who spoke here last week.

A pension reform bill that would increase retirement savings contribution limits and streamline the process for setting up retirement plans for small businesses will be introduced in the House of Representatives this week, according to Elizabeth Gregory, a spokesperson for The Financial Services Roundtable of Washington, D.C., a financial services company association.

Lance Brofman, a former principal of Fundamental Portfolio Advisors, a now defunct mutual fund group in New York, has been fined $250,000 by an SEC administrative law judge in New York and barred for life from associating with a broker/dealer, investment adviser or investment company.

The Securities and Exchange Commission, long the scourge of fund marketing departments, may have given marketers something to smile about in adopting new regulations on after-tax disclosure of performance information. The new regulations, which require funds to post before and after-tax performance information in prospectuses and advertisements promoting funds' tax management, provide some funds a new approach to marketing their product, said industry executives. The regulations were adopted Jan. 19.