Compliance

The Securities and Exchange Commission has speedily adopted a rule to permit fund companies to continue to convey sales and marketing materials electronically - particularly on websites - to prospective investors without first supplying them with a prospectus or asking for their permission to provide the prospectus in electronic form.

The Orbitex Focus 30 Fund is hoping to file a countersuit against an individual who named the fund in an amended lawsuit filed earlier this year. A motion was filed July 13 in the 13th Circuit Court in Hillsborough County, Fla., seeking the court's approval to file the countersuit.

The U.S. Second Circuit Court of Appeals of New York ruled July 10 that broker-dealers do not have to disclose trailing payments received from fund firms. The court ruled that such fees are already disclosed in funds' prospectuses and statements of additional information.

Washington - Proposed Securities and Exchange Commission rules prohibiting independent auditors from providing other types of consulting services to their audit clients should be adopted, two mutual fund industry executives told the SEC last week.

The National Association of Securities Dealers Regulation posted guidance on its website July 21 about mutual fund and annuity advertising and suitability screening for multi-class mutual funds.

The Investment Company Institute of Washington D.C. has until July 31 to respond to a lawsuit filed by two shareholders alleging the organization is in violation of federal security laws, according to Ronald Rubin who is representing one of the shareholders. The ICI is expected to file a motion seeking a dismissal of the suit, said Rubin.

If legislation introduced in the House of Representatives late last month becomes law, it would make it easier for fund companies to capture a greater percentage of the nearly $300 billion annual rollover of 401(k) assets, according to industry executives and analysts.

The General Accounting Office's report on fund profitability, which draws no conclusion as to whether fund companies have taken advantage of economies of scale to reduce fees but does encourage more disclosure of fees, has elicited a range of responses. It has been dismissed by some industry analysts as a self-serving move by politicians and welcomed by consumer advocates.

The Rupay-Barrington Financial Group of Arlington, Tex. issued a statement July 17 denying knowledge of a lawsuit the SEC filed against the firm accusing it of fraud. The SEC's charges were posted on its website July 12, and accuse the company of making improper loans to its affiliates resulting in inflated net asset values of its three funds. It also charges the companies with illegally suspending investor's redemptions, according to the SEC filing.

The Investment Company Institute has asked the SEC to make changes in its after-tax rule proposal that would reduce the quantity of data funds would be required to disclose and would mean funds have to include the data in prospectuses only, not in annual reports as well.

The Investment Company Institute of Washington, D.C. last week announced its support of legislation that would revamp ERISA regulations to allow 401(k) plan providers to offer employees advice.

The Securities and Exchange Commission is considering allowing fund companies to shorten their bi-annual shareholder reports, according to a spokesperson for the SEC.

A bill introduced in the House of Representatives would exempt from federal taxes up to $3,000 in mutual fund capital gains fund investors must accept even though they have not sold their fund shares. For investors filing joint returns, that exemption would be doubled to $6,000.

The SEC's final privacy regulation substantially departs from its initial proposal and allows fund companies to issue shorter, more general privacy statements than they originally would have had to, industry attorneys said.

The SEC is considering delaying revisions to the principal form investment advisors must file concerning their business practices because of objections raised to the proposed revisions.

The SEC has proposed new rules to protect auditor independence that will place new responsibilities on mutual fund companies.

The SEC has charged Founders Asset Management LLC of Denver with defrauding its clients in a soft-dollar arrangement with an investment advisor, according to an SEC filing. The commission has issued $790,000 in fines against the firm and Bjorn Borgen, its former president.

NEW YORK - While there are no clearly defined compliance standards for best execution trade practices, firms that do not use electronic commerce networks to conduct any of their trades raise SEC concerns, according to an SEC official.

BOSTON-The SEC is concerned that increasing competitive pressures the mutual fund industry faces could lead it to engage in misleading or overly aggressive advertising, said Paul Roye, director of the SEC's division of investment management.

A suit charging that New York Life Insurance Co. breached its fiduciary duty as a sponsor to two pension plans and two 401(k) plans, is entirely without merit, the company said in a statement issued prior to the suit's filing.