Week in Review
June 25, 2007
SEC Judge Dismisses Late-Trading Case Against Former J.B. Oxford Lawyer
A Securities and Exchange Commission administrative law judge has dismissed charges against Scott G. Monson, the former general counsel for J.B. Oxford, for allegedly enabling late trading. The SEC had charged Monson with approving more than 12,000 late trades in 600 funds between June 2002 and September 2003.
Although the judge found that Monson contributed to late-trading violations, he couldn't be held accountable because he didn't know about the rules or "how mutual funds were priced," and, therefore, didn't intentionally break them, Judge Robert Mahoney said.
"The division has failed to prove by a preponderance of the evidence that Monson knew, or should have known, that drafting the procedural agreement would contribute to" the firm's violations, Mahoney wrote.
The SEC may still appeal the decision.
Mutual Fund Fees at Lowest in 25 Years: ICI
The Investment Company Institute released a report Tuesday indicating that mutual fund fees are at their lowest levels in 25 years, a result of investors' increased appetite for low-cost funds and greater competition among mutual funds.
"Fees are important to investors, and this study shows that they continue to pay close attention to them," said ICI Senior Economist Sean Collins.
Fund fees have been decreasing since 1980, the ICI said, the greatest among stock and bond funds, whose fees have decreased by more than 50%. Fees for money market funds have decreased about 25% in the period.
In 2006, equity fund investors paid an average of 107 basis points in fees and expenses, down four basis points from 103 basis points in 2005. Bond fund investors paid an average of 83 basis points last year, down five basis points from the year before, and money market fund investors paid an average of 40 basis points, a two-basis-point decline.
The ICI also found that 90% of the assets held in stock funds are in those with below-average expense ratios.
The decline in fees and expenses on stock funds also owed in large part, the ICI said, to lower loads that investors paid last year. While the average maximum sales load in 2006 was 5.28%, discounts on large purchases and waivers on purchases through 401(k) plans brought the actual average that investors paid to only 1.31%.
Colorado Hedge Fund Execs Settle Civil Suit For $30.6 Million
Three executives of a hedge fund in Colorado have settled a civil suit for $30.6 million, the Colorado Springs Gazette reports.
The three are Hamilton Alan Bird, David Edward Newton and Douglas Alan Scott, formerly of XL Capital Partners and the Vision Fund, who are paying $21.6 million, $8.2 million and $851,000, respectively.
Bird and Scott still face criminal charges on state securities fraud and theft charges, with Bird's court date scheduled for Aug. 13 and Scott's on Sept. 4. In exchange for testifying against his former partners, Newton reached a plea bargain in January on a securities fraud charge, for which he will be on probation for 15 years and must conduct 200 hours of community service.
All three have been banned from the securities industry for life.
Second Pilgrim Baxter Remuneration, $73 Million, Soon to be Mailed: SEC
The Securities and Exchange Commission announced that a second group out of a total of three groups of Pilgrim Baxter investors will soon receive $73 million. The remuneration is part of a total of $267 million in the Pilgrim Baxter fair fund, set aside to repay 384,000 investors harmed by market timing in the PBHG Funds, for which Pilgrim Baxter was the investment advisor, between June 1998 and December 2001.
The first $125 million was sent to investors in April of this year. The SEC expects the third disbursement to be made before Sept. 30.
To date, the SEC has distributed more than $1.8 billion in fair funds to investors.
More Employers Shorten 401(k) Eligibility Period To Within Three Months
Employers are doing a better job of helping their workers save for their retirement, with 69% permitting new employees to begin contributing to their 401(k) within three months, up from 65% in 2005, according to the Profit Sharing/401(k) Council of America.
The organization also found that among large employers with 1,000 or more employees, nearly 85% offer eligibility within three months, up from 79% in 2005.
"Shorter eligibility periods are good news for workers," said David Wray, president of the Profit Sharing/401(k) Council. "Basically, we don't want a participant's 401(k) savings to be interrupted when they change jobs. You want a system where employees are constantly in a savings status."
Morningstar Raises Bar for Stewardship Grades, with Focus on Culture, Boards
Morningstar has raised the bar for the stewardship grades it has been giving to mutual fund companies since 2004 for sound corporate practices, namely: regulatory history, fees, fund manager incentives, board governance quality and corporate culture. Morningstar said it will now change underlying criteria for four of the above areas, leaving fund manager incentives alone.