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Wednesday, September 29, 2004

Fund Mini-Sweep One of 80 Underway

by: Sean Hanna, Editor in Chief

More details about the SEC mini-sweep of fund firms were reported by Tuesday morning. Initial reports of the SEC actions on Monday focused on events in Boston, however, follow up reports confirm that the SEC is targeting as many as two dozen fund firms nationwide. SEC Chairman William Donaldson also said Monday that he is looking for new tools to help with enforcement. Surprisingly, no fund firms have confirmed receipt of the letter.

Boston Globe reporter Beth Healy reports Tuesday morning that the Boston SEC office sent a letter covering 23 "detailed items" to up to two dozen mutual fund companies. As initially reported, the SEC is investigating whether fund managers, traders, and other high-ranking insiders made any improper trades in funds over the past three years.

The letter asks for information within the month on items ranging from lists of employees to written policies on market timing, rapid trading and the minutes of meetings held by fund trustees, according to Healy's report.

Healy adds that no fund firms have admitted to receiving the letter, but that a number (including Putnam Investments, MFS Investment Management, Evergreen Investments, Pioneer Investments, State Street Research & Management Co., Eaton Vance Management, and the American Funds) say they are unaware of it. Meanwhile, Fidelity Investments, Vanguard Group, and the Dreyfus Funds declined to comment to Healy.

One reason why fund firms may not be able to confirm receipt of the letter is the newly energetic level of SEC activity.

Lori A. Richards, head of the SEC's newly created Office of Risk Assessment, told the Washington Post that the SEC now has roughly 80 mini-sweeps underway. Those sweeps are gathering information about the functioning of all areas of the financial services industry, including the brokerage and mutual fund industries.

"We've got to be nimble at identifying problems before they become embedded in a large number of firms," Richards told the WaPo, adding that the mini-sweeps "will help us determine and prioritize areas of emerging risk and allow me to deploy examiners to . . . those highest-risk areas."

The thrust of the WaPo article is that SEC Chairman William Donaldson is hoping to shift the enforcement emphasis at the SEC from investigating wrongdoing after the fact to identifying possible problems up front and implementing fixes before widespread damage is done.

Donaldson's model for the new SEC effort is the Federal Reserve and the nation's banking system. He hopes that the SEC staff will be able to work with fund firms and broker-dealers much as banks work with the Fed to quietly fix problems.

The new Office of Risk Assessment is part of that effort. So also was the May hiring of Charles A. Fishkin, a former trader and Fidelity Investments risk-management executive.  

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