Week in Review
April 16, 2007
SEC May Require Funds to Disclose Fees in Dollars
The Securities and Exchange Commission is considering forcing mutual funds to disclose fees and performance as simple numbers, SEC Chairman Christopher Cox told the Los Angeles Times.
Funds should report "one simple number that captures fees and expenses," he said, noting that the information is typically buried in fund prospectuses.
"It's our top regulatory priority," he said. "There are always technical concerns raised by someone, but the truth is that apples-to-apples comparisons are quite useful for consumers. The same should be possible for our retirement savings."
SEC Commissioner Roel C. Campos agreed: "If the government expects retirees to manage their own accounts, they need to know how their investments are doing, and right now, many don't know how they are doing."
Barbara Roper, director of investor protection at the Consumer Federation of America, applauded the idea. "It's a good concept: giving people simple, easily comparable information," she said. "The question is whether they'll come up with a number that is really meaningful."
SEC Makes Waves for
Hedge Funds in Cayman
Recent chatter about making hedge funds with a physical presence in the United States register with U.S. regulators is making waves in the Cayman Islands, according to the online Financial Times.
The Caribbean archipelago has a reputation as a paradise for vacationers and hedge funds alike, due to fund-friendly laws that allow hedge funds to open shop relatively quickly and then take a buyer-beware attitude to regulation.
Since the 1993 passage of the Mutual Funds Law, fund managers have used the less bureaucratic laws of the Cayman Islands to get a head start on competitors. Today, the Cayman Islands are home to 500 bank and trust companies and more than 8,000 hedge and mutual funds.
Besides less red tape, the Cayman Islands charge no direct tax on funds. Funds can apply for a 20-year tax waiver, and apply to extend their tax-exempt status later.
Some worry that much of the business will be washed away if the Securities and Exchange Commission passes a rule requiring any hedge fund with a presence in the U.S. to register here.
"If regulators in the U.S. and Europe are trying to protect the investor, they've got to understand that very little investment management is handled in Cayman," said Mark Lewis, a senior partner who specializes in hedge funds at law firm Walkers Global. "And if regulators are concerned about protection, they need look no further than their own jurisdictions."
The influx of institutional dollars into hedge funds may also pressure many managers to move to more closely regulated jurisdictions.
Bryan Hunter, partner at Cayman-based legal and administrative service provider Appleby Hunter Bailhache and one of eight directors of the Cayman Islands Financial Services Association, sees institutional money as no threat at all. "They are familiar with the jurisdiction, familiar with the regime, and they know that it is in accordance with international standards," Bailhache said. "The prospect of institutional investors not feeling comfortable with this regime is remote," he said.
Investors Want $500k Back
From Evergreen Security
Evergreen Security investors are trying to recover $500,000 from the Orlando-based firm, whose management perpetrated the largest consumer-investment scam in Florida history in the 1990s, according to the Orlando Sentinel.
The investors filed a lawsuit against Orlando law firm GrayRobinson to recoup fees the firm received from a former client accused of participating in the fraud. The lawsuit states that the law firm improperly withdrew $500,000 in fees from a fund that the firm held in a trust for financial adviser J. Anthony Huggins.
However, GrayRobinson claims the suit has no merit.
"It's a frivolous claim, and we will respond to it appropriately," said Biff Marshall, a partner with GrayRobinson. "Our firm was properly authorized by the client to withdraw those funds as payment for services."
Evergreen investors have targeted the Huggins trust fund held by GrayRobinson as part of an international effort to recover their losses.
Last year, an Orlando bankruptcy judge ordered Huggins and his associate Jon M. Knight to pay $8 million for their role in the scam, which cheated investors out of nearly $215 million. The two were also ordered into involuntary bankruptcy as part of the collection effort.
Huggins and Knight were accused of a Ponzi scheme that paid returns to initial investors using money raised from later investors. They denied the allegations and appealed the decisions, but it was recently upheld in the U.S. District Court.
Evergreen went into Chapter 11 bankruptcy. Lawsuits and criminal chares were filed against the perpetrators. Bankruptcy trustee Bill Cuthill, Jr. tried to find a lot of the money, which was put away in offshore accounts. Two years ago, when Evergreen emerged from bankruptcy, investors hired Cuthill as the operation's president. Cuthill states that he recouped around $27 million of the money.