The Securities and Exchange Commission’s enforcement division is putting a heightened focus on fund boards’ approval of advisor fees, Andrew Ceresney, co-director of the division, said Wednesday.
Speaking on a panel at the Securities Enforcement Forum in Washington, Ceresney said that while the enforcement division has been focused on investment advisor fraud and market structure cases, other areas that the division will home in on include accounting fraud and financial reporting.
When asked by reporters after his remarks to provide more insight into the SEC’s focus on fund boards, Ceresney declined to comment further but cited the SEC’s action in May in which the gatekeepers of a pair of Northern Lights mutual fund trusts were charged with causing untrue or misleading disclosures about the factors they considered when approving or renewing investment advisory contracts on behalf of shareholders.
Stanley Sporkin, a former federal judge and SEC enforcement director, told ThinkAdvisor that the Northern Lights case highlights the importance of fund directors’ role as “gatekeepers” in ensuring the shareholders are not getting socked with hefty fees, like 12b-1 fees or excessive advisory fees. “The gatekeeper includes those people who the law looks to as protecting the interests of investors, and one group are mutual fund directors, particularly directors of investment companies, where the investors’ interests are vulnerable.”
The SEC states in the Northern Lights action that the SEC Enforcement Division’s asset management unit has been taking a wide look into the investment advisory contract renewal process and fee arrangements in the fund industry.