IM DIRECTOR GIVES SPEECH AT ICI ANNUAL MUTUAL FUND CONFERENCE
3.22.2004 Paul Roye, the SEC's Division of Investment Management Director, spoke at the 2004 Mutual Funds and Investment Management Conference in Palm Desert, California about the mutual fund industry. He stated that the mutual fund industry faces a new environment in the industry is at the center of our nation's financial scandals, and the SEC is pursuing initiatives to promote accountability among fund and advisory personnel with renewed urgency.
He noted that it has been alleged that broker-dealers and other financial intermediaries facilitated late trading and abusive market timing activity. He also noted that it has been alleged that in a number of cases the driving force behind the abusive activity was largely unregulated hedge funds seeking to profit at the expense of mutual fund shareholders. Nevertheless, Director Roye stated that "in too many instances, the activities of these parties was facilitated by mutual fund personnel, in some cases with the alleged approval of management at the highest levels of the firms."
He then reviewed the SEC's lengthy mutual fund rulemaking agenda.
Please click http://www.sec.gov/news/speech/spch032204pfr.htm for a copy of the speech.
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COMMISSIONER GLASSMAN SPEAKS ON COMPLIANCE
3.23.2004 SEC Commissioner Glassman spoke at the SIA Compliance & Legal Division's 35th Annual Seminar in Phoenix, Arizona. She spoke about the impact of the mutual fund scandal and reviewed the SEC's response, including various rulemaking initiatives.
She then told the industry to ask: "What is it that I can do to ensure that my firm has a strong compliance program?" She then offered suggestions, including the following mnemonic "ACCOUNT:"
- A is for Active. As legal and compliance personnel, you must be diligent in guarding against your organization's running afoul of the applicable rules and regulations.
- C stands for Comply, as in comply with the rules - not just the letter, but the spirit as well.
C also stands for Counsel. As the legal and compliance professionals within each of your organizations, you must advise management of its responsibilities, and ensure that the organization, and its agents and employees, all promote good corporate behavior.
- O is for Oversee. You should review regularly your organizations' policies and procedures, and advise management of steps that should or must be taken to strengthen them. Moreover, for investment companies and investment advisers, you are now required annually to review those policies and procedures for their adequacy and the effectiveness of their implementation. Although the rule requires only an annual review, it also cautions that one should consider the need for interim reviews in response to significant compliance events, changes in business arrangements, and regulatory developments.
- U is for Understanding. You must Understand how your organization operates, including knowledge of the firm's products and how the organization earns its money.
- N means Notify. If there is a problem, do not try to hide it. If you do, things will only get worse. As you know, our standards of professional conduct for attorneys require an attorney that represents issuers to report evidence of a material violation of securities laws or a material breach of fiduciary duty or a similar material violation by the issuer "up-the-ladder" within the company. If the company officials do not respond appropriately to the evidence, the attorney is required to report the evidence to the audit committee, another committee of independent directors, or the full board.
- T is for Thankful. If you follow all the other suggestions I've given you, you will avoid many problems and will be thankful for that.
Please click http://www.sec.gov/news/speech/spch032304cag.htm for a copy of the speech.
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SEC AND CFTC SIGN MEMORANDUM OF UNDERSTANDING REGARDING OVERSIGHT OF SECURITY
FUTURES PRODUCT TRADING
3.17.2004 The SEC and the CFTC signed a Memorandum of Understanding (MOU) regarding
the oversight of security futures product (SFP) trading and the sharing
of security futures product information.
The Commodity Futures Modernization Act of 2000 gives the SEC and CFTC
joint authority for the oversight and regulation of security futures
products. With respect to security futures products, the MOU provides that the SEC
and CFTC will notify each other of any planned examinations, advise the
other of reasons for an intended examination, provide each other with
examination-related information, and conduct examinations jointly, if
feasible. The SEC and CFTC will also notify each other of significant
issues arising from these markets and share trading data and related
information for SFP activity.
Please click http://www.cftc.gov/files/opa/opavixorderfinal.pdf for a copy of the MOU.
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SEC SETTLES CHARGES AGAINST BANK OF AMERICA FOR MARKET TIMING AND LATE TRADING
3.15.2004 The SEC agreed in principle with Bank of America of
securities fraud charges arising from arrangements to permit timing in
certain Nations Funds mutual funds and for facilitating market timing
and late trading by certain customers.
Bank of America has agreed to pay a total of $375 million, consisting of
$250 million in disgorgement and $125 million in penalties. The money
will be distributed to the mutual funds and their shareholders that were
harmed as a result of market timing in Nations Funds and other mutual
funds through Bank of America.
Bank of America has represented that
it will also exit the securities clearing business by the end of the
year. Bank of America has also agreed to (i) implement certain election and
retirement procedures for the Nations Funds trustees that will result in
the replacement of the Nations Funds trustees within one year; and (2) certain undertakings designed to strengthen the
mutual funds' and broker-dealers' oversight of compliance with the
securities laws.
Please click http://www.sec.gov/news/press/2004-33.htm for a copy of the press release announcing the settlement.
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SEC SHUTS DOWN UNREGISTERED HEDGE FUND
3.15.2004 The SEC filed an emergency
action to halt an alleged ongoing multi-million dollar securities fraud,
naming San Diego-based Global Money Management, L.P., (GMM) an
unregistered private hedge fund, LF Global Investments, LLC (LF Global),
which operated GMM, and Marvin I. Friedman, 65, of La Jolla, California. Acting on the Commission's lawsuit, the Honorable Barry T. Moskowitz,
U.S. District Judge for the Southern District of California, yesterday
issued a temporary restraining order against GMM, LF Global, and
Friedman, appointed a receiver over GMM and LF Global.
The SEC alleges that since 1993, the defendants have
sold, in an unregistered offering, limited partnership interests in GMM,
a purported private hedge fund that invested in securities, such as
stock and stock options. While the amount of money actually raised is
not known, Friedman has told investors at various times over the last
several months that the hedge fund held assets ranging from $60 million
to over $100 million. GMM's brokerage records, however, show that,
since at least December 2002, the securities it holds have been worth no
more than $11 million. In addition, Friedman touted his investment
experience but failed to inform investors about his disciplinary
history, including that he has been barred from association with any
member of the National Association of Securities Dealers.
Please click http://www.sec.gov/divisions/marketreg/mr-noaction/sia021204.htm to access a copy of the no-action letter.
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CHANGES TO SEC FORM ID ARE PROPOSED
3.15.2004 Form ID is the application for access codes to file on EDGAR. Currently, applicants applying for access codes to file on EDGAR must file a Form ID in paper by fax. When the SEC initially launched EDGAR, it required applicants to file Form ID in paper by mail. In November 2001, the SEC began to require that applicants file Form ID solely by fax.
The SEC has now proposed a rule and form amendments to mandate the electronic filing of Form ID. The SEC also is proposing to amend Regulation S-T to make hardship exemptions unavailable to Forms ID.
Because only new filers will file the electronic Form ID, the SEC believes that the form should be supplemented with additional verification to help ensure the security of the system. Accordingly, the SEC is proposing to amend Regulation S-T to require these applicants to file in paper by fax within two business days before or after electronically filing Form ID a notarized document, manually signed by the applicant over its typed signature, that includes the information contained in the Form ID filed or to be filed and confirms the authenticity of the Form ID.
Finally, the SEC is proposing a few minor changes to Form ID to facilitate the electronic filing provisions.
Please click http://www.sec.gov/rules/proposed/33-8399.htm to access a copy of the release proposing the rule amendments.
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SEC PROPOSES PORTFOLIO MANAGER DISCLOSURE RULE
3.11.2004 The SEC is proposing amendments to investment company registration forms that would increase disclosure about portfolio managers. The amendments would require the following additional disclosure: (1) the members of management teams, (2) the accounts portfolio managers manage, (3) portfolio manager compensation structure, and (4) ownership of securities in accounts that the portfolio managers manage. The SEC also is proposing to remove the current provision in Form N-1A that excludes a fund that has as its investment objective replication of the performance of an index from the requirement to identify and provide disclosure regarding its portfolio managers.
The SEC, in order to assist investors in finding the additional information about portfolio managers, would require investment companies to disclose in their prospectus that the SAI provides additional information about portfolio managers' compensation, other accounts managed by the portfolio managers, and the portfolio managers' ownership of securities in the fund and other accounts managed by the investment adviser or the portfolio managers. This disclosure would be required to appear adjacent to the disclosure identifying the portfolio managers.
The SEC also is proposing to require that the back cover page of an investment company's prospectus state whether the fund makes available its SAI and annual and semi-annual reports, free of charge, on or through its website at a specified Internet address.
Please click http://www.sec.gov/rules/proposed/33-8396.htm to access a copy of the release proposing the rule amendments.
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SEC OFFICIALS TESTIFY ABOUT MUTUAL FUNDS BEFORE THE SENATE COMMITTEE ON BANKING, HOUSING AND URBAN AFFAIRS
3.10.2004 Lori A. Richards, Director of SEC's Office of Compliance Inspections and Examinations (OCIE), testified about changes OCIE is making to our examination oversight, specifically with respect to market timing, and more broadly with respect to overall examination oversight generally. One of OCIE's goal is Our goal is to improve examiners' ability to identify and scrutinize transactions and arrangements that place the interests of fund shareholders at risk. Ms. Richards also testified about other changes to fund examinations, including a new fund surveillance program.
Paul F. Roye, Director of the SEC's Division of Investment Management, testified about the SEC's recent regulatory actions to protect mutual fund investors. He reviewed his division's regulatory agenda, including initiatives aimed at conflicts of interest.
Please click http://www.sec.gov/news/testimony/ts031004lar.htm for a copy of Ms. Richard's testimony.
Please click http://www.sec.gov/news/testimony/ts031004pfr.htm for a copy of Mr. Roye's testimony.
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Please click http://www.sec.gov/rules/final/33-8392.htm for a copy of the release announcing the postponement.
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