TREASURY GIVES MUTUAL FUNDS AND HEDGE FUNDS MORE TIME TO IMPLEMENT ANTI-MONEY LAUNDERING PROCEDURES
4.23.2002 The U.S. Department of the Treasury issued interim final anti-money laundering rules, which delayed statutory an April 24, 2002 deadline for financial institutions to have anti-money laundering programs in place under the USA PATRIOT Act. Treasury's action provides investment companies and hedge funds more time to develop anti-money laundering procedures.
Mutual funds are now required to have anti-money laundering programs implemented by July 24, 2002. The mutual fund anti-money laundering procedures must be approved in writing by each fund's board of directors. The board approval can be given at its first regularly scheduled meeting after the program is adopted.
Investment advisers to hedge funds also have until July 24, 2002 to implement hedge fund anti-money laundering procedures.
The Department of Treasury also announced that broker-dealers will not be subject to a separate Treasury rule, but will simply be governed by new NASD Rule 3011 or New York Stock Exchange Rule 445, both of which retain the statutory April 24
effective date.
Please click http://www.treas.gov/press/releases/po3034.htm to access a copy of the release announcing the Department of Treasury interim rules.
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FORMER PORTFOLIO MANAGER BARRED FROM ADVISORY INDUSTRY
4.18.2002 The SEC alleged that James Oh misappropriated $500,000 of clients funds. Mr. Oh is a former portfolio manager associated with two investment advisers in Portland, Oregon.
Oh allegedly misappropriated client funds by telling clients about purported investment opportunities and then directing the clients to forward funds to him by check or wire for investment. The SEC's complaint also alleges that Oh did not invest the funds on his clients' behalf; rather, he deposited the client funds into his personal bank accounts, commingled the client funds with his and used the misappropriated funds for personal expenses, such as credit card and car payments.
Please click http://www.sec.gov/litigation/admin/ia-2029.htm to access the administrative action.
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ICI WANTS MORE 529 PLAN DISCLOSURE
4.12.2002 The Investment Company Institute (ICI) sent a letter to the Municipal Securities Rulemaking Board requesting the board to require broker-dealers who offer 529 plans to provide written disclosure about potential state tax benefits to investors. In the ICI's view, many investors do not realize that they may be better served by investing in their own state's 529 plan, as opposed to other states. The ICI noted that while a plan established by one state may be sold nationwide, and while all 529 plans provide for favorable tax treatment under the federal tax laws, typically those states that provide advantageous state tax treatment for investments in their Section 529 plans only provide it to those investors who are residents of their state. The ICI wants the board to make sure that the tax treatment accorded under a particular state�s plan is one factor that an investor should consider prior to investing in a plan.
Please click http://www.ici.org/msrb_529_broker_com.html for a copy of the letter.
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CFTC PROPOSES ONLINE REGISTRATION PROCESS
4.12.2002 The Commodities Futures Trading Commission (CFTC) proposed amending rules governing the registration of futures industry intermediaries to require online registration. Intermediaries include futures commission merchants, introducing brokers, commodity pool operators, commodity trading advisers, leverage transaction merchants and associated persons.
The National Futures Association (NFA) processes registration statements. The NFA expects to propose rules in June, 2002, which would require online registration.
Please click http://www.sec.gov/litigation/admin/ia-2023.htm to access a copy of the proposal.
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MUTUAL FUND ADVISER FINED FOR DEVIATING FROM PROSPECTUS STATEMENT OF ADDITIONAL INFORMATION
4.12.2002 The SEC fined ND Money Management and its President, Robert Walstad, $40,000 for managing mutual funds in a way that violated restrictions set forth in the funds' statements of additional information (SAI). Between May 1, 1996 and at least December 31, 1998, one of the funds held more than 5% of its net assets in COPs, contrary to the restriction set forth in the fund's SAIs. Between December 2, 1996 and at least October 1, 1999, three of the funds purchased unrated industrial development bonds contrary to restrictions set forth in their prospectuses. From time to time, between May 1, 1996 and at least September 23, 1999, six of the funds invested more than 5% of their total assets in another investment company contrary to restrictions set forth in their SAIs. During that time period, two of those Funds also invested more than 10% of their total assets in two or more investment companies contrary to restrictions set forth in their SAIs.
ND Money Management is a subsidiary of Ranson Capital. It is headquartered in Minot, North Dakota.
The SEC found a number of other violations. Several funds violated Section 12(d)(1)(A) of the Investment Company Act by acquiring securities of another investment company, the value of which exceeded 5% of the acquiring funds' net assets. In addition, ND Money Management violated the firm's Code of Ethics, which requires the reporting and recordkeeping of employee personal securities trades.
Please click http://www.sec.gov/litigation/admin/34-45743.htm to access a copy of the administrative action.
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NASDR NAMES NEW GENERAL COUNSEL
4.12.2002 NASD Regulation Inc. named Marc Menchel as its general counsel. He was formerly the general counsel of Tucker Anthony Inc., a registered broker-dealer. Prior to that he was International Counsel for Prudential Securities, where he was based in London and oversaw the legal and compliance departments in London, Paris, Hong Kong and Melbourne. He began his career as a compliance officer at Thomson McKinnon Securities.
Please click http://www.nasdr.com/news/pr2002/release_02_016.html to access a copy of the release announcing the appointment.
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SEC PROPOSES RULE ADDRESSING INTERNET INVESTMENT ADVISERS
4.12.2002 2002 The SEC proposed Rule 203A-2(f) under the Investment Advisers Act of 1940, which would permit investment advisers that offer their services through interactive Internet sites to register with the SEC instead of the states. The amendments are designed to alleviate the burden of multiple state regulation on advisers whose business is unconnected with any particular state and for whom multiple state regulation would be a hardship.
The SEC drafted the rule to make it unavailable to advisers that merely have websites as marketing tools or that use Internet vehicles such as E-mail, chat rooms, bulletin boards and webcasts or other electronic media to communicate with clients. Rather, eligibility for the exemption would turn on whether the adviser conducts substantially all of its advisory business through an interactive website. The rule defines "interactive website" as a website in which computer software-based models or applications provide investment advice to clients based on information that each client supplies through the website. The rule defines the term "substantially all" to mean that at least 90% of the investment adviser's clients obtain advice exclusively through the interactive website.
Please click http://www.sec.gov/rules/proposed/ia-2028.htm to access a copy of the rule proposal.
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NEW REGISTRATION FORM FOR INSURANCE PRODUCTS
4.12.2002 2002 The SEC proposed a new registration form for insurance company separate accounts that register as unit investment trusts. The new form, Form N-6, will be used by insurance companies to register their separate accounts under the Investment Company Act of 1940 and their securities under the Securities Act of 1933.
The new form is designed to streamline the registration process by replacing two forms (N-4 and N-1A) that were not designed for variable life insurance policies with a single form. The proposed amendments would revise the format of the fee table to require disclosure of the range of expenses for all of the mutual funds offered through the separate account, rather than disclosure of the expenses of each fund.
Please click http://www.sec.gov/rules/proposed/33-8087.htm to access a copy of the release proposing Form N-6.
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HOUSE PASSES PENSION SECURITY ACT OF 2002
4.11.2002 The House of Representatives passed the "Pension Security Act of 2002," which address a number of rules governing retirement plans. The bill would allow 401(k) participants to receive professional investment advice from financial institutions regardless of whether the financial institution provides investment options for the plan. In such a situation, the following conditions would have to be met:
- the firm providing the advice would have full fiduciary responsibilities under ERISA to provide prudent and objective advice to plan participants;
- conflicts of interests would have to be fully and timely disclosed to the plan participants; and
- employers of the plan participants would be responsible for selecting and performing periodic reviews of the firm providing the advice.
Please click http://beavoter.org/congressorg/issues/votes/?votenum=92&chamber=H&congress=1072 to access a copy of the legislation.
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