MutualFundWire.com: SEC Task Force Seeks Better Answers for Fund Oversight
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Tuesday, March 23, 2004

SEC Task Force Seeks Better Answers for Fund Oversight


While much of the focus on the SEC in recent months has concerned the raft of new proposed rules, the Commission is also set quieter wheels in motion that could have a profound effect on fund operations.

Indeed, how the SEC should go about overseeing the fund industry is part of the mandate of a task force recently formed by SEC Chairman William Donaldson. The task force is examining the issue of fund surveillance consists of members from all of the SECís divisions and its team of economists.

At the top of its agenda is determining whether the SEC is now collects the right information from the industry to ferret out abuses before they become endemic. Not only could the task force recommend that fund firms turnover additional types of information, but it could also recommend elimination of some data sets that it now collects.

One possible type of data that may be collected from funds in the future could be cash flow data, Paul Roye, director of the SECís Investment Management Division told the MFWire.

"They will think the issues through and then make a series of recommendations to the Commissioners," explained Roye.

He added that there is as of yet no timetable for the task force to submit its recommendations, but that the report could come as soon as this summer. Still, the speed with which the task force completes its assignment will be affected by the complexity of the issues that it delves into.

"The chairman has made this a priority and he expects to see results soon," said Roye. "Hopefully sometime in the summer."

According to Roye, the task forceís work is part of an internal reassessment at the SEC in wake of its failure to identify the problems with market timing and late trading that are now sending shockwaves through the industry.

The goal, according to Roye, is to answer the question of how the SEC can "minimize the things we miss and maximize our ability to catch abuse."

Addressing late trading, Roye noted that it is difficult to find that type of abuse without some one tipping regulators. Indeed, it was an employee of a sister company to hedge fund Canary Capital Partners that alerted New York State Attorney General Eliot Spitzer to the late trading being made through Bank of America and Security Trust. That initial tip also led Spitzerís office to the market-timing strategies used by arbitrageurs. Those initial probes were the initial loose threads that unraveled the tapestry of the fraudulent schemes laid by multiple hedge funds and mutual funds.

He also said that market timing is a form of collusive fraud that is very difficult to find. He also pointed out that funds had targeted timers in their prospectuses and addressed the issue in their policies. "Why would we identify either market timing or late trading as a risk area?"

He added that "no one is going to put those things in a formal agreement, you almost have to have someone rate someone else out."

Before the interview, Roye addressed members of the ICI at the groupís annual Mutual Funds and Investment Management meeting in Palm Desert, California.

In the speech, he outlined and explained the broad sweep of the reforms proposed since the mutual fund scandals emerged in September.

Roye pointed to four major issues that the SEC is reacting to: market timing and late trading; fund governance; conflicts of interest; and improving disclosures with regards to items such as fees.

During his remarks Roye also criticized some in the fund industry for finger pointing, and failing to accept responsibility for their own failings. He also lamented that some in the industry are resisting needed changes proposed by the SEC.

"Too many members of the industr ... lost sight of their fiduciary obligations and that the interests of the shareholders come first," said Roye. "Some in the industry are coming face to face with their responsibility."


Printed from: MFWire.com/story.asp?s=6875

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