Along with the New York Stock Exchange (NYSE), the SEC and the NASD have been probing certain Wall Street firms offering front-end mutual funds to determine if they are overcharging investors who make large mutual-fund purchases, according to a Dow Jones news report.
The Wall Street Journal reported earlier this month that the investigation has uncovered evidence that a wide range of brokerage firms has been overcharging investors. Investors who make significant purchases may be eligible for discounts known as “breakpoints.” (See SEC Looking at Breakpoints ). However, some brokers may intentionally divide big purchases into smaller ones to gain larger commissions.
In addition, the SEC said outgoing Chairman Harvey Pitt recently sent a letter asking NASD, the Securities Industry Association and the Investment Company Institute to convene a working committee to recommend ways in which the mutual fund and brokerage industries can prevent abuses. Pitt said officials are also looking for ways to eliminate errors in the calculation of sales loads and improve investor education on those loads.
The move comes as regulators are pushing for more disclosure from mutual funds on several fronts.The SEC will move ahead next week with a proposal to require mutual funds to disclose their proxy-voting records(See Groups Push Support for SEC Fund Disclosure Rule). In December the agency proposed rules to require mutual funds to disclose their top holdings quarterly rather than semiannually.
Meanwhile, Congressmen Michael Oxley, R-Ohio, and Richard Baker, R-Louisiana, have asked the General Accounting Office, Congress’s investigative arm, to study trends in mutual-fund fees and disclosure.
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