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Administration March 1, 2002
Mutual Fund Trading Under Scrutiny – SEC Official
January 15, 2001 (PLANSPONSOR.com) - The Securities
and Exchange Commission is looking into trading practices at
mutual funds, concerned that they may be "pumping" their
portfolios - end-of-quarter trading designed to shore up a
fund's performance.
Reported by Nevin E. Adams
The SEC has reportedly found evidence of the practice in 30-40 funds as part of a special SEC task force investigation of the issue, according to Lori Richards, director of the SEC’s office of compliance, inspections and examinations.
The performance of those funds rose 3-5% on the last day of the quarter, according to Richards, who made the comments at the Mutual Fund Directors Council on Friday, according to the Wall Street Journal.
Portfolio pumping involves buying additional shares of stocks already held in the portfolio, pushing the price of the stock higher, and lifting the price of shares already held in the portfolio. That short term boost at the end of a reporting period can lift the overall value of the portfolio.
Richards didn’t name any of the funds under scrutiny, and stressed that the SEC is still in a “fact-finding” stage. She also issued the standard disclaimer by SEC officials that her remarks reflect her views, not those of the agency.
Richards also said the SEC is concerned about reports of window dressing – when funds buy “hot” stocks just before the end of a reporting period – boosting appearance, but not performance of the funds.