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House Asks SEC for Report on Fees, Directors

House Financial Services Capital Markets Subcommittee Chairman Richard H. Baker (R-LA) dashed off a letter to Securities and Exchange Commission Chairman William Donaldson last Wednesday asking the SEC to look into mutual funds fees. Fee tables aside, Baker asserted investors are "ignorant" of how much they are paying.

Baker said that while T. Rowe Price Chairman James Riepe testified on March 12 (see MFMN 3/17/03) "investors get all the information they need to make an intelligent decision," counterpoints by John Bogle, founder of Vanguard, and Gary Gensler, former undersecretary of the U.S. Treasury, raised enough questions for Congress to ask the SEC to probe further.

The diligence of fund directors and trading costs are other issues Baker wants the SEC to investigate and report back on with legislative or regulatory recommendations by June 11.

On top of that, Congress raises additional issues.

Baker wants the SEC to look into fund distribution practices, particularly with respect to 12b-1 fees. He asked the SEC to consider whether letting investors know how portfolio managers are paid and whether they hold shares in the funds they manage would be useful information. The estimated $2 billion that fund companies pay to brokers for distribution is yet another question Congressman Baker raised in his letter.

Meanwhile, a SEC roundtable planned for May could be the first step toward hedge fund regulation.

The SEC announced last week it will hold roundtable discussions on hedge funds May 14 and 15 at its headquarters.

"We need more information, more data, more discussion and more understanding of the techniques" hedge funds use, particularly shorting the market, SEC Chairman William Donaldson said a week ago in a speech to the National Association for Business Economics.

One of the things the SEC is considering is regulating the hedge fund industry. Right now, the commission can only take action against individual managers or funds, and recently that has been on the rise. Last year, the SEC had 12 civil cases against hedge fund managers, up from five in 2001.

The roundtable will also look into the structure of hedge funds and their marketing.

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