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News September 11, 2006 Issue

SEC Performance Fee Sweep Nets Five Advisers

The SEC last week announced five settled enforcement actions against various advisory firms that allegedly charged excessive performance based fees to certain mutual funds: Dreyfus, Gartmore Mutual Fund Capital Trust, Kensington Investment Group, Numeric Investors, and Putnam Investment Management.

The cases, like earlier performance fee cases brought against Bridgeway Capital Management and Renn Capital, involved technical non-compliance with Advisers Act Section 205, which specifies a specific calculation methodology for performance fees. After the Bridgeway Capital case, the SECís examination staff conducted a sweep to determine whether the problem was wide-spread throughout the industry. The five cases are a result of that sweep.

The SEC asserted that the firms overcharged the funds approximately $7 million over a seven-year period. The SEC did not, however, allege that any of the advisers engaged in willful misconduct. Each of the advisers has since reimbursed the affected funds. None of the firms paid a civil money penalty to settle the SECís charges.