SEC Investigation of BISYS Comes to a Close

September 27, 2006 (PLANSPONSOR.com) - The Securities and Exchange Commission's (SEC) probe into whether financial services outsourcing firm BISYS used mutual fund fees to pay for the marketing and distribution of the funds has been settled with a charge of aiding and abetting.

BISYS has agreed to pay $21.4 million to the affected mutual funds as part of its agreement with the SEC.  

The regulator’s charges against BISYS fell short of fraud, but found that between June 1999 and July 2004 BISYS Fund Services (BFS) had marketing arrangements with 27 mutual fund advisers in which it set aside a portion of administrative fees to use for the marketing of those funds – charges that BFS neither admits nor denies.       

When BFS’ senior management learned the SEC was investigating its mutual fund fee distribution practices in December 2004, it launched its own internal investigation (See BISYS Adopts Reform on Mutual Fund Agreements). The scrutiny by the regulator prompted swift changes, according to BFS, which included terminating the marketing arrangements, disciplining/firing employees involved with the arrangements, and drafting new policies and procedures.

As a result of its settlement with the SEC, BISYS has agreed to:

  • Retain and cooperate with an independent compliance consultant, who will conduct a comprehensive review of BFS’ policies and procedures and report to the BISYS board and SEC.
  • Retain and fully cooperate with an independent distribution consultant to oversee the distribution of the company’s  $21.4 million payment. This amount has been previously disclosed by BISYS.
  • Cooperate with a follow-up review conducted by the independent compliance consultant to ensure implementation of any recommendations contained in the consultant’s report.

In July 2005, BISYS estimated that the costs generated by the investigation would not break the $25 million mark and that it had restated its financial statements for FY 2002, 2003 and 2004 (See BISYS Reports SEC Settlement Talks ).

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