Investment Management Compliance & Regulation

8/27/2010
Shareholder Rights Plans, Even Adopted Seriatim, Withstand Scrutiny

Sometimes used to entrench management, a shareholder rights plan can also work to preserve shareholders' value over the long term. When closed-end funds face raiders seeking short-term gains, a plan can thwart the would-be raid. IM attorneys Arthur Delibert and Jennifer Gonzalez explain.
8/27/2010
Lessons From Four Failed Funds: Do Not Ignore Red Flags

By the time the SEC sued four hedge funds for fraud between 2000 and 2005, the investors had lost as much as $500 million. Charismatic fund managers with extravagant lifestyles had embezzled the money. Despite grossly inflated fund returns and asset values, no one questioned them. Due diligence could have saved the day, and regulatory reform might prevent future frauds. Finance professor Majed Muhtaseb reveals the underlying dysfunction that led to disaster.
7/22/2010
SEC Proposes Measures to Improve Regulation of Fund Distribution Fees and Provide Better Disclosure for Investors

Washington, D.C., July 21, 2010 — The Securities and Exchange Commission today voted unanimously to propose measures aimed to improve the regulation of mutual fund distribution fees and provide better disclosure for investors.
6/23/2010
Change The Tax Laws To Make Funds More Attractive

Financial columnist Chuck Jaffe decries the current tax treatment of mutual funds. Profitable trades made simply to reinvest the fund's holdings will trigger capital gains tax for the fundholders, even without any distributions. That's enough to scare some investors away. (a Bowne Briefly)
6/23/2010
How Networking Between Fund Directors And Advisors Affects Shareholders

Working together on project after project, mutual-fund advisors and directors tend to form ongoing relationships. Management professor Camelia Kuhnen wonders how this networking affects hiring decisions. Directors tend to renew the advisory contracts, favoring the advisors who chose the directors for the board (and who could do so elsewhere). Whether such connections also harm the shareholders is a separate question.
6/17/2010
SEC Proposes New Measures to Help Investors in Target Date Funds

Washington, D.C., June 16, 2010 — The Securities and Exchange Commission today voted unanimously to propose rule amendments to help clarify the meaning of a date in a target date fund’s name and enhance the information provided to investors in these funds as they invest for retirement.
5/24/2010
Does The Chief Compliance Officer Need Help?

David Hoffman wonders if chief compliance officers have too much on their plate. Since the SEC decided that all mutual funds should have a one, CCOs have been juggling the burdens of both compliance and risk, leading some observers to call for a chief risk officer.
4/23/2010
Supreme Court Decision Finds Disparate Fees Are Not Excessive

A March 2010 decision by the Supreme Court addresses a split in the circuits on how to evaluate investment advisory fees. The Court also mentioned marketing expenses. The authors, six attorneys from K&L Gates, wonder if the holding will allow fund boards to factor in marketing costs when setting advisors' fees.
4/23/2010
Security Breaches Of Personal Data Should Raise Concerns For Financial Services Firms

Broker-dealers, investment advisors, and mutual fund managers should be familiar with the increasingly strict state laws governing security breaches of personal data. California's statute is the template for most, but attorney John Kennedy warns of a new regulation in Massachusetts, which seems to apply even for data holders not doing business in the Commonwealth.
4/12/2010
SEC Posts Mutual Fund Risk/Return Summary Taxonomy Upgrade

Interactive Data and Mutual Fund Risk/Return Summaries

SEC staff has completed updates to the technology infrastructure to fully support the submission of Risk/Return Summary information in XBRL. Mutual funds are now able to create and fully test their XBRL documents in preparation for the January 1, 2011 compliance date.
4/7/2010
Fund Advisors' Proxy Votes Still Favor Management

Investors in mutual funds must rely on the funds' advisors to cast proxy votes at the portfolios companies. The advisors of mainstream funds almost always vote with management, opposing stockholders' advisory resolutions on reform. When questioned, advisors have lots of explanations, but none seem convincing to Jennifer Taub, a business law lecturer and attorney.
4/7/2010
Regulating Exchange-Traded Funds, Notes, And Vehicles

ETFs, ETVs, and ETNs have increasingly popular. Financial services and corporate attorneys Thomas Conner and James Cain explain the differences and outline a proposed SEC rule that may favor exchange-traded funds over the others.
1/28/2010
SEC Approves Money Market Fund Reforms to Better Protect Investors

Washington, D.C., Jan. 27, 2010 - The Securities and Exchange Commission today adopted new rules designed to significantly strengthen the regulatory requirements governing money market funds and better protect investors.
1/25/2010
New SEC Unit Will Scrutinize Fund Industry

With its brand-new Asset Management Unit in the Division of Enforcement, the SEC is making amends for perceived enforcement lapses in the investment management industry. Targeting mutual fund firms, hedge funds, and private equity funds, the new unit will detect and pursue violations of the 1940 Act, attorney Stephen Crimmins warns.
1/25/2010
Draft The Statutory Prospectus First, Then The Summary

Amended Form N-1A requires a fund's statutory prospectus to begin with a summary section. Compliance is now mandatory. Revised Rule 498 permits (but does not require) a fund to deliver a summary prospectus containing most of the same information same order as the summary section. Corporate and securities attorney Michael Wible suggests the fastest route to consistent disclosure: prospectus, then summary section, then summary prospectus.