Fifth Third, Bank of Oklahoma Pay Up After BISYS Kickback Quagmire
August 20, 2007
BISYS Fund Services may be all but history now with various servicing units having been parceled out to other acquiring firms. But troubles are still brewing among at least some of the 27 mutual fund clients that the firm had questionable distribution arrangements with dating back to the 1990s. And now, fund advisors are opening their wallets in an effort to make investors whole.
BISYS paid $21.4 million to settle with the Securities and Exchange Commission in September 2006 for having allegedly agreed to inflated contracts with mutual fund companies and then kicking back a substantial portion of the contract price to the fund companies that hired it. The funds would then use the money for marketing and other expenses, and in return, recommend BISYS to their fund boards, according to the SEC complaint. All told, the SEC said, BISYS paid $230 million in kickbacks out of investors' fund assets between 1999 and 2004.
Although the SEC didn't name the 27 mutual fund companies in its suit against BISYS, Victory and AmSouth Asset Management publicly acknowledged that the SEC was investigating them for accepting kickbacks from BISYS, and Pacific Trust and BNY Hamilton hinted they were involved.
Now, SEC filings indicate the names of other mutual fund companies implicated in the mess.
Fifth Third Asset Management, the Cincinnati-based asset management division of Fifth Third Bancorp., quietly told shareholders of its mutual funds via a prospectus amendment filed with the SEC on Aug. 6, that it has ponied up money to apparently settle up with fund investors over the BISYS brouhaha.
"In response to the SEC's inquiries related to this matter, including those of the trust's service arrangements with BISYS, on July 31, 2007, the advisor made a one-time contribution to certain series of the trust. The contribution was in an amount of less than one-half of 1% of the total assets of each recipient series [mutual fund]. It remains unclear the extent to which the trust and certain of its service providers are or may be affected by the SEC's investigation of BISYS," noted Fifth Third's amendment.
Fifth Third is the advisor to a broad complex of 36 mutual funds with total current assets under management of nearly $12.4 billion.
The exact dollar amount and to which of the funds repayment was made was not disclosed in the filing.
Rick Ille, director of product marketing for Fifth Third, confirmed that the firm did make a one-time contribution after looking into the matter, but said that he could not comment beyond what was contained in the SEC filing.
Fifth Third did, however, make a point of noting that neither the fund advisor, nor the Fifth Third complex of funds, was directly implicated in BISYS' Sept. 26, 2006 settlement with the SEC.
While the SEC has not formally sanctioned any of the more than two dozen fund clients caught up in the BISYS distribution debacle, at least several of the fund groups and/or their advisors have been under regulatory investigation and have been scrambling to right the past wrongs.
Caught up in the BISYS distribution squall, the board of directors of the nine-fund American Performance Funds, the $3.6 billion proprietary mutual fund complex of BOK Financial (the holding company of The Bank of Oklahoma) in Tulsa, Okla., appears to have applied just enough pressure. AXIA Investment Management, also of Tulsa, is the registered investment advisor managing the bank's fund group.
Although the American Performance Funds were not officially under the securities regulator's microscope, the company notified AXIA that the SEC was investigating its past marketing agreements with BISYS.
In October 2006, just weeks after the BISYS settlement with the SEC, the fund's board of directors formed a special ad hoc committee to investigate and decide how to proceed.
On May 4, 2007, the fund board committee demanded that AXIA and/or BISYS refund $8.1 million plus interest to the fund group as restitution for the marketing arrangements between 1999 and 2004. It also demanded that AXIA repay the more than $1 million spent on the investigation of this matter, and indicated that further monetary demands for the periods before 1997 could be forthcoming.
According to an Aug. 9 SEC filing, The Bank of Oklahoma "examined the expenditures procured by AXIA pursuant to the questioned marketing arrangements and paid or tendered for payment $1.7 million for expenses which were, or could be argued to have been, improperly charged to the marketing arrangements." However, AXIA noted for the record that it believed the committee's claims were without merit.
Just last week, on Aug. 14, 2007, AXIA disclosed in a new SEC filing that it had fully settled the BISYS matter with the fund group and agreed to pay the mutual funds more than $2.23 million, although it is unclear whether this was in addition to the original $1.7 million reimbursement or the total amount repaid.
Repeated calls to BOK Financial, as well as a call to AXIA Investment Management seeking comment, were not returned.
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