SEC TO HOLD HEDGE FUND ROUNDTABLE
3.26.2003 The SEC will hold roundtable discussions
on a wide range of issues relating to hedge funds. The discussions will be held Wednesday, May 14, and Thursday, May 15, in
the William O. Douglas Room at Commission headquarters, 450 Fifth
Street, N.W., Washington, D.C., beginning at 9 a.m. The roundtable will
be open to the public, on a first come, first served basis.
The roundtable will cover a number of topics,
including:
- the structure, operation and compliance activities of
hedge funds;
- marketing issues;
- investor protection issues;
- the current regulatory scheme; and
- whether additional regulation is
warranted.
Additional information about the roundtable may be accessed at
http://www.sec.gov/spotlight/hedgefunds.htm for the press release.
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NASD NOW PERMITS WEB FILINGS OF ADVERTISEMENTS
3.21.2003 Mutual fund distributors and other broker-dealers may now file of advertisements and sales literature directly to the NASD's Advertising Regulation Department for review via the Web. Filings are made through the Advertising Regulation Electronic Files (AREF) system, which is one of several Web-based applications provided to NASD member firms as part of the Regulation Form Filings System. Other applications include FOCUS, Blue Sheets, and Customer Complaints.
Please click http://www.nasdr.com/rca_spring03.asp for a copy of the release making the announcement.
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ADVISER FOUND LIABLE FOR FAILING TO DISCLOSE AGREEMENT WITH POTENTIAL ACQUIRER
3.20.2002 The SEC found Javed Anver Latef, president and
director of the Hudson Fund, and president and sole shareholder of
Hudson Advisers, Inc. and Hudson Investment Management, Inc., to have violated
the antifraud and reporting provisions of the federal securities laws when he failed to disclose material facts concerning certain agreements and
relationships that Latef entered into with Larry Alan Stockett. Specifically, he failed to disclose that Stockett had an
option to purchase Hudson Advisers and Hudson Management for $100 each,
that Stockett had agreed to pay the Fund's expenses and was responsible
almost exclusively for the payment of the Fund's expenses from August
1996 until April 1997, and that the Fund invested in securities of
companies in which Stockett had, or was in the process of acquiring, an
interest. The SEC suspended Latef from
association with any investment adviser or investment company for three
months and ordered that he cease and desist from violating the
applicable securities laws. Noting that the undisclosed material facts
"indicated serious conflicts of interest," the SEC stated that
"Latef's failure to disclose them to shareholders and potential
investors in the Fund represented an extreme departure from ordinary
care."
Please click http://www.sec.gov/litigation/litreleases/lr17995.htm to access a copy of the administrative action.
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CFTC PROPOSES TO MODERNIZE REGULATION CPOs, CTAs AND FCMs
3.13.2003 The Commodity Futures Trading Commission (CFTC) proposes to modernize a number of major rules affecting commodity pool operators (CPOs), commodity trading advisors (CTAs), futures commission merchants (FCMs), and others who trade or deal in commodity futures and options. If adopted, the proposed actions would:
- Make available bunched orders to all customers and to a greater number of account managers. Account managers would be permitted to bunch customer orders together for execution and to allocate them to individual accounts at the end of the day. The amendments also would simplify the process for executing and allocating bunched orders, and would clarify the respective responsibilities of account managers and FCMs.
- Existing exemptions for CPOs and CTAs would be expanded and there would be several new exemptions from registration requirements for CPOs and CTAs. For example, CPOs would be exempt from registration where their trading in the futures markets is minimal or where their pool participants are sophisticated. The Commission is seeking comment on appropriate thresholds for such minimal activity and participant sophistication.
- The CFTC will address the longstanding notional funds issue by proposing the use of nominal account size to compute CTAs� rates of return for disclosure to prospective clients. The proposal includes documentation and disclosure requirements to accommodate various potential concerns. As part of the proposed rulemaking, the Commission is seeking comment on whether a core principle approach should replace the current detailed performance rules.
- The CFTC is authorizing the National Futures Association to review the disclosure documents required to be filed by CPOs of publicly offered commodity pools.
Please click http://www.cftc.gov/opa/press03/opa4763-03.htm for the press release announcing the proposals.
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HOUSE HOLDS HEARING ON MUTUAL FUND FEES
3.12.2003 A subcommittee of the House Financial Services Committee held a hearing on mutual fund fees, expenses and other practices that impact individual investors. The General Accounting Office (GAO) submitted a report on mutual fund fees and expenses, which discussed whether there should be more disclosure of mutual fund brokerage costs.
Please click http://financialservices.house.gov/hearings.asp?formmode=detail&hearing=187 for a web page that contains a link to the GAO report.
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NO-ACTION LETTER ISSUED ALLOWING REBATE OF 12b-1 FEE
3.6.2003 The SEC's Division of Market Regulation granted a no-action letter permitting a registered representative (Edward Mahaffy) of Raymond James Financial Services, Inc., a broker-dealer, partial refunds of "Rule 12b-1 fees" attributable to their investment in certain investment companies ("mutual funds") that were paid to their "broker(s) of record," without those customers registering as broker-dealers in accordance with Section 15(b) of the Securities Exchange Act of 1934.
Mr. Mahaffy proposes to solicit mutual fund investors, exclusively through Raymond James, by offering to provide the investors with a refund of a portion of the Rule 12b-1 fees paid to broker-dealers that are attributable to their investment in mutual funds. Rule 12b-1 fees are assessed against specified classes of mutual fund shares and are paid out of the fund's assets attributable to that class under a plan adopted by the fund's board of directors pursuant to Rule 12b-1 under the Investment Company Act of 1940 ("1940 Act").
The incoming letter successfully argued that You argue that Mr. Mahaffy's customers should not be considered brokers or dealers "as a result of merely owning shares in mutual funds and receiving a partial refund of Rule 12b-1 fees."
Importantly, the SEC's Division of Investment Management questioned whether direct or indirect rebates of 12b-1 fees by a mutual fund are consistent with the policies and provisions of the 1940 Act. The SEC staff noted that in Southeastern Growth Fund stated that "any waiver or rebate of an investor's pro rata portion of the expenses incurred under a 12b-1 plan would raise serious concerns under both section 36 of the [1940] Act and general fiduciary principles."1 In particular, Rule 12b-1(e) requires a fund's board of directors to conclude that there is a reasonable likelihood that a 12b-1 plan will benefit the fund and its shareholders before a fund may implement or continue the plan. Rule 12b-1(d) further provides that, in reaching such a conclusion, the board of directors must consider and give appropriate weight to all pertinent factors, and record in the fund's minutes the basis for the decision to use fund assets for distribution. The staff of the Division of Investment Management believes that a broker-dealer's practice of rebating to its customers all or a portion of 12b-1 fees paid by the fund to the broker-dealer would be a pertinent factor requiring a board of directors' full consideration in reaching its conclusion with respect to a fund's 12b-1 plan, and the staff of the Division of Investment Management questions whether a 12b-1 plan under which broker-dealers rebate 12b-1 fees to their customers would benefit the fund and its shareholders.
Please click http://www.sec.gov/divisions/marketreg/mr-noaction/mahaffy030603.htm for a copy of the no-action letter.
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NEW SEC WEB SITE FOR FORM 3, 4 AND 5 FILINGS
3.4.2003 The SEC has created a new Web site at
http://www.onlineforms.edgarfiling.sec.gov for on-line
creation and submission of Securities Exchange Act of 1934 Section 16(a)
ownership reports (Forms 3, 4, and 5). The SEC hopes that the Web
site will make it easier for individuals to satisfy the electronic filing
obligations that will apply to them when electronic submission of these
forms is mandated later this year. See Release 33-8170 at
http://www.sec.gov/rules/proposed/33-8170.htm.
The SEC encourages individuals, companies and filing agents to use the new Web
site to create and submit "test" filings and to provide us with their
comments or suggestions for improving the system as soon as possible.
We anticipate that the test system will be available for approximately
30 days. After April 25, 2003, the test system will go "live" and
filers will no longer be able to make Form 3, 4, or 5 filings using the
existing EDGAR template system. From that time until the date the
mandated electronic filing rules become effective, filers will need to
file Forms 3, 4 and 5 electronically, using either the new on-line Web
site system or private company software products, or in paper.
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SEC SETTLES CHARGES BROUGHT AGAINST ADVISER TO INSOLVENT MUTUAL FUND
3.4.2003 The SEC settled charges brought against Judy M. Rupay and Dixon R. Holman,
principals in Rupay-Barrington Capital Management, Inc. (RBManagement),
an investment adviser formerly registered with the SEC. On July 10, 2000, the SEC filed an emergency injunctive action
against RBManagement, Rupay-Barrington Financial Group, Inc. (Group) and
Rupay-Barrington Funds, Inc. (the Fund), a registered series investment
company. The SEC's complaint alleged that RBManagement knowingly
caused the Fund to carry, as an asset, a worthless receivable at face
value from Group, which was deeply insolvent. As a consequence the Fund
sold and redeemed shares at an inflated net asset value. At the
SEC request, and with the consent the defendants, the court
appointed a Special Master to take control of the Fund, liquidate its
assets and distribute the assets to the Fund's shareholders.
Under
the terms of the SEC's order, Rupay and Holman were each
censured, suspended from association with an investment company for six
months and ordered to pay a civil monetary penalty of $10,000.
Please click http://www.sec.gov/litigation/admin/33-8199.htm for a copy of the administrative order.
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