SEC Sues Over Y2K Preparedness
May 10, 1999
The SEC last week brought its first action against a mutual fund adviser regarding preparedness for computer problems arising from the turn of the century.
The commission filed suit against a small Internet fund firm - WWW Advisors of Lexington, Ky. - for failing to file the SEC's year 2000, or Y2K disclosure document for mutual fund advisory firms.
In the form, ADV-Y2K, mutual fund advisers are supposed to describe the readiness of their computer and processing systems for the turn of the century. The SEC said WWW Advisors, the advisory firm for the $30 million WWW Internet Fund, failed to file its Y2K form by the SEC's Dec. 7 deadline. WWW Advisors then again failed to file by March 12 after receiving an SEC warning regarding the matter, the SEC alleged in a complaint filed Tuesday.
The SEC also sued another investment adviser, Ethical Investments of Minneapolis, which the agency said advises an investment company. An SEC official with knowledge of the fund which Ethical advises was not available for comment. A search of SEC records online did not reveal the identity of the fund. Ethical did not return a call seeking comment.
Lawrence York, president of WWW Advisors, said his firm will contest the SEC's allegations at an administrative hearing. WWW Advisors and the WWW Internet Fund did not have $25 million in assets under management as of Dec. 7, York said. As a general rule, the SEC only regulates advisers with at least $25 million in assets under management. WWW Advisors had only about $8 million in assets in December, York said.
The SEC also did not inform WWW Advisors that it needed to file the Y2K form by Dec. 7, York said. He said other mutual fund firms received such notice.
"We slipped through the cracks," York said. No hearing date has been set in the case, York said.
Despite the WWW Advisors and Ethical cases, the mutual fund industry appears well prepared for Y2K, SEC officials said last week.
"Firms seem to be working diligently to get their systems ready, (and) tested well before the end of the year," said Gene Gohlke, associate director of the SEC's Office of Compliance, Inspections and Examinations.
SEC examiners reviewed mutual fund advisors' Y2K forms after they were filed in December, Gohlke said. That review resulted in SEC examiners contacting by telephone or inspecting in person approximately 200 firms, Gohlke said. Of those approximately 200 firms, there is a minority that appear to be behind schedule with respect to Y2K compliance, Gohlke said. The precise number of firms was not immediately available.
The SEC will continue to monitor the progress of firms that appear to be behind schedule, Gohlke said. Fund advisory firms are required to file a revised Y2K form in June. Gohlke said SEC examiners will review those forms and follow up with telephone calls and inspections as needed for firms whose Y2K readiness appears behind schedule.