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Rating:SEC Examiners Aren't Alone In Putting High-Yield Bond Funds Under the Microscope Not Rated 0.0 Email Routing List Email & Route  Print Print
Wednesday, January 20, 2016

SEC Examiners Aren't Alone In Putting High-Yield Bond Funds Under the Microscope

Reported by Neil Anderson, Managing Editor

The class-action lawyers who just attacked Third Avenue are now trying to go after 15 more high-yield bond funds. And they may target broker-dealers whose FAs use those funds, too.

Jacob H. Zamansky
Zamansky LLC
Yesterday New York City-based Zamansky LLC unveiled investigations into a dozen open-end mutual funds, two hedge funds, and a closed-end fund. The investigation comes four days after Zamansky filed a $500-million, putative class-action lawsuit over the now-infamous fall of Third Avenue's Focused Credit Fund.

Zamansky's investigation also comes shortly after news broke that, in the wake of the Third Avenue fund's collapse, SEC examiners have been reaching out to mutual fund and ETF shops about the challenges of pricing less liquid securities.

Jacob Zamansky confirms to MFWire that he is looking into potential misrepresentation of risk and violation of fiduciary duty claims against fund firms, as well as potential issues around FAs and broker-dealers using high-yield bond funds for "a lot of elderly and retired people."

"We've been getting calls from investors at different brokerage firms, telling us that a lot of the brokerage firms were pushing high yield investigations on people who were looking for bigger yields ... without disclosing that they're either junk or that there's serious risk of default," Zamansky says.

For its investigation, the law firm specifically singles out open-end, high-yield mutual funds from the following firms: Capital Group's [profile] American Funds, Avenue Capital Group, Federated [profile], Fidelity [profile], Waddell & Reed's Ivy [profile], MFS [profile], Pimco [profile], Pioneer [profile], T. Rowe Price [profile], Toews, Vanguard [profile], and Legg Mason's Western Asset [profile].

Spokespeople for Avenue Capital, Fidelity, and Pimco declined to comment on Zamansky's investigation. Spokespeople for Federated and T. Rowe Price were not immediately able to comment. And spokespeople for Capital Group, Ivy, MFS, Pioneer, Vanguard, and Western Asset also could not immediately be reached for comment.

Jake Zamansky says that his firm is "getting feedback from investors who have losses in those funds." Perhaps press coverage is also a factor. An executive with Toews tells MFWire that last month a Toews fund was "erroneously included in a group by Morningstar" that was cited in a since-corrected Wall Street Journal article about high-yield bond funds' woes. 

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