Compliance

The Securities and Exchange Commission is proposing a new rule that would formally permit mutual fund companies to invest in repurchase agreements (repo's) and pre-refunded bonds (pre-re's). Since the early 1980's, the SEC has not taken an official position but has informally viewed repo's and pre-re's as collateralized investments. It has done this by responding with so-called no-action letters to requests from fund companies to invest in repos and pre-re's.

Five independent fund trustees have won a small victory in a lawsuit originally filed against them as well as Investment Adviser's, Inc., the mutual fund adviser in Minneapolis, Minn., and the IAI Value Fund. Investment Adviser's is a subsidiary of Lloyds TSB of London.

Independent mutual fund directors must provide more information about themselves and, in some cases, their families but also stand to receive valuable protection if the SEC eventually adopts new and revised rules and guidelines that the agency proposed last week.

A nasty proxy fight should draw closer to a conclusion Friday when the shareholders of the closed-end Portugal Fund vote on a series of proposals which could convert the fund to an open-end structure and give closed-end fund activist Ronald Olin a seat on the fund's board of directors.

Auditors of mutual funds may shortly have new guidelines for when personal investments in mutual funds are permissible.

The former chief investment officer for Mitchell Hutchins Asset Management of New York has agreed to pay $10,000 to settle SEC charges that she failed adequately to supervise a portfolio manager's investment and securities pricing practices.

Charles F. Parisi, a California financial services executive, allegedly worked with his brother and a colleague to dupe fund board members, insurance companies and portfolio managers about Parisi's troubled past and conceal Parisi's role in a firm which managed a trust used in variable annuities, the SEC alleged last week.

A United States District Court judge has fined a former Los Angeles mutual fund manager $1 million in restitution, interest and penalties for misrepresenting the value of two worthless funds as $138 million, combined, to two brokerage firms in order to obtain margin loans.

A tight labor market in the mutual fund industry is creating new business for courtroom lawyers - filing suit on behalf of money management firms to enforce the non-compete provisions in executives' employment agreements.

SAN DIEGO, Calif. - The Securities and Exchange Commission in November will adopt corporate governance regulations to strengthen the role of independent directors, an SEC official told attendees of the Investment Company Institute's tax and accounting conference here last week. The SEC had initially said it would issue new regulations in the summer.

The SEC, which increasingly is examining the securities trading practices of money managers, has sued an investment adviser for allegedly failing to get the best execution of trades for its clients.

Van Kampen Investment Advisory Corp. of Oakbrook, Ill. and former company chief investment officer Alan Sachtleben have agreed to pay $125,000 in fines for what the SEC said was misleading advertising about the performance of the Van Kampen Growth Fund. The SEC announced the settlement Sept. 8.

NASD Regulation has proposed a rule to bar broker/dealers from paying registered representatives more for selling proprietary mutual funds than for selling funds offered by outside fund companies. The practice of paying representatives more for selling house funds can create a conflict of interest between representatives and their clients, NASDR said in issuing the rule proposal Sept. 2. NASDR members have until Oct. 29 to comment on the proposal. In June, NASDR officials said they expected to issue such a proposal to ban extra pay for proprietary sales this summer. (MFMN, 7/12/99)

Complex derivatives are unnerving that part of the accounting industry that audits mutual funds.

Investors in the $40 million Navellier Aggressive Small Cap Equity Fund may not have to pay the costs of a lawsuit between the fund's adviser and two of its trustees.

The SEC has sanctioned a Phoenix firm that frustrated a handful of closed-end funds with its controversial tactics - known as mini-tender offers - to buy fund shares from individual investors.

The SEC is continuing to press the money management industry on year 2000, or Y2K, computer programming and compliance issues.

The newly adopted rules that govern the personal trading practices of portfolio managers contain few changes from the SEC's original proposal four years ago, regulators, mutual fund lawyers and consultants said last week.

Although Congress included much of what the mutual fund industry sought in a major tax cut bill - the Financial Freedom Act of 1999 - that legislation is likely to be vetoed by President Clinton next month.

Mutual fund companies and the SEC are watching developments at General American Life Insurance Company of St. Louis, Mo. A handful of fund companies, including OppenheimerFunds of New York, Federated Investors of Pittsburgh, Northern Trust Corp. of Chicago and Alliance Capital Management LP of New York, hold in their money market funds, short-term funding agreements issued by General American. The firm was placed under the supervision of Missouri insurance regulators Aug. 11. Representatives of the funds said they expect their investments will be repaid. "It's illiquidity, not insolvency," said J.T. Tuskan, a spokesperson for Federated. The SEC is monitoring the situation, a spokesperson said.