SEC (Securities and Exchange Commission) Turns its
Attention to Mutual Fund Brokerage Scandals
Just when investors thought the mutual fund scandals were behind them,
a new phase of investigations is initiated. This time the US Securities
and Exchange Commission [SEC] is directing its full attention on mutual
fund brokerage abuses. According to SEC regulators, their probe shows
that there were widespread mutual fund brokerage abuses involving the
mutual fund industry.
SEC Investigates Mutual fund companies
The Securities and Exchange Commission disclosed that it is now actively
conducting an investigation of the degree and magnitude of mutual fund
abuses. Based on SEC’s initial findings, eight-broker dealers and
twelve mutual fund companies are currently being examined, dozens more
would be added to the list, an SEC spokesperson said.
These preliminary findings were disclosed at a time when the government
agency was about to introduce new proposals requiring brokerage companies
and mutual fund organizations to beef up their transparency provisions
to investors particularly relating to fees and conflict of interest matters.
Commenting on the mutual fund brokerage scandal, Stephen Cutler, the head
of enforcement for SEC said, “A customer has the right to know where
the incentive is [for the broker]”
SEC probes revenue sharing in mutual fund industry
Last November in its “revenue-sharing” probe, the SEC fined
Morgan Stanley $50million for its failure to inform its investors that
some kickbacks were funneled to its brokers to help in the promotion of
certain mutual fund companies. That probe showed that of the 15 brokers
examined by SEC, 14 brokers had received some cash payments from some
mutual fund companies. Between $50 and $400 were paid for every $100,000
of mutual fund sale, and up to $250 if such asset were reinvested in the
fund. According to SEC, some brokers granted special promotion activities
to the funds providing such payments.
The director of SEC’s office of compliance, Lori Richards explained
that as a result of the SEC examinations, the agency concluded that “revenue
sharing” was a wide spread practice within the mutual fund industry,
adding that most mutual fund companies denied to her office staff, that
broker commissions were at all used to pay for sales and distribution
of products. The SEC’s new proposals would force brokers-dealers
and mutual fund groups to provide for the general public all and any of
their assessed fees and charges.
Paul Oranika
Editor-in Chief
Hedgco.net
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"These examinations indicate to us that revenue
sharing is a very common practice in the mutual fund industry,"
said Lori Richards, the director of the SEC's office of compliance
and inspections.Ms Richards said that most mutual fund companies repeatedly
denied to her staff that they used broker commissions to pay for distribution.The
new rules to be proposed will force funds and broker-dealers both
to publish fee information that can be compared across the industry. |
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