SEC Requires More of Fund Managers

May 27, 2004 ( - Mutual fund managers must now report personal investments in their own funds and abide by other ethical strictures.

In a unanimous 4-0 vote, the Securities and Exchange Commission (SEC) laid out guidelines for mutual fund manager investment disclosure to help provide assurances to investors that the managers are not making large lot trades solely for their own interests.   In addition to disclosing their personal interest in the funds they manage,   fund managers must also obtain clearance before making personal investments in initial public offerings and limited offerings,the Washington Post is reporting.

The new personal investment disclosure comes on the heels of last week’s settlement between state and federal regulators and Richard Strong, the embattled founder of Strong Capital Management.   Under terms of the agreement, Strong agreed to pay $60 million to settle allegations he market-timed his firm’s mutual funds over a five-year period netting an estimated $1.8 million in personal gains (See  Strong Settles with Federal, State Regulators ).

Also adopted by the Commission was a set of guidelines that wouldrequire registered investment advisers to “adopt and enforce codes of ethics applicable to their supervised persons.”   The SEC said the new rule is designed to prevent fraud by “reinforcing the fiduciary principles that must govern the conduct of advisory firms and their personnel.”

Unanimous approval was also given to ameasure requiring mutual fundsto begin disclosing more about their policies for giving some large investors sales fee discounts.  The enhanced disclosure is intended “to assist investors in understanding the breakpoint opportunities available to them,” the Commission said in a   news release.

The new disclosure follows a probe last year that uncoveredevidence that brokers were not offering “breakpoint discounts” to all eligible to receive them.  Earlier this year, 15 firms settled disciplinary allegations related to the discounts. The settlement included provisions for the firms to compensate customers for the overcharges, pay fines that total over $21.5 million, and undertake other corrective measures, the SEC said.