WASHINGTON (HedgeWorld.com)–The U.S. Securities and Exchange Commission so far has collected US$1.4 billion in disgorgement and US$1 billion in penalties in mutual fund trading scandals, and SEC Chairman William Donaldson is on a mission to boost ethical investment practices.
In a recent speech, Mr. Donaldson told lawyers that much of the “anguish” over the scandals could have been avoided if lawyers had informed their hedge fund clients that late trading of mutual fund shares is illegal and that market timing and quid pro quo “sticky asset” arrangements are unethical.
“That sort of common-sense advice would have been more effective in keeping the client out of trouble than engaging in rhetorical somersaults to justify the activities the client wanted to pursue,” Mr. Donaldson said in a speech at a conference sponsored by the Practising Law Institute.
To date the only hedge fund to pay market-timing fines by SEC mandate has been Canary Capital Partners LLC, Secaucus, N.J., although other hedge funds and brokers have been implicated in the scandal.
Mutual fund companies snagged so far by the SEC are: Banc of America Capital Management; Pilgrim Baxter & Associates; Fremont Investment Advisers; RS Investments; Franklin Templeton Advisors; PIMCO Funds; Invesco; Bank One Corp.; Strong Capital; and Alliance Capital.
In a speech last year, Mr. Donaldson presented regulatory reform as a way to win back mutual fund investors trust following enforcement actions over late trading.
Not referring to hedge funds in particular, Mr. Donaldson encouraged attorneys in last week’s speech not to spend significant time, money and energy in trying to evade requirements. He also warned against achieving technical compliance with a rule while at the same time “artfully dodging” a rule’s purpose.
Contact Bob Keane with questions or comments at: firstname.lastname@example.org.