Plus, news on Spitzer, DWS Dreman, Federated, Rydex, and more.
Mutual fund administrative-services firm Bisys agreed to pay the Securities and Exchange Commission $21 million to settle charges of alleged fraud involving as many as 27 different unnamed mutual fund families.
According to the SEC, between July 1999 and June 2004 Bisys participated in a fraudulent arrangement whereby the firm returned a portion of fees paid to it for its services back to fund advisors, who in turn used the money to market their funds. In essence, fund investors, whose assets were used to pay Bisys, were paying not solely for fund services but also for marketing and related expenses, which should be paid for by the advisor, not fundholders.
"As a direct result of Bisys' misconduct, mutual fund investors unknowingly paid millions of dollars for marketing their funds," said Randall Lee, the director of the SEC's Pacific Regional Office.
Fund advisors are supposed to either pay for marketing costs themselves or impose a 12b-1 fee to cover marketing costs. Either way, we hope the SEC will soon release the names of the fund families that participated in this scheme, because shareholders have a right to know.
Spitzer Sues Seligman
New York Attorney General Eliot Spitzer's office sued J. & W. Seligman & Co. in New York State Supreme Court in Manhattan, alleging that the firm and its president Brian Zino engaged in market-timing trades that cost long-term small investors $80 million. Spitzer's office stated that "the evidence also shows that senior managers were well aware of the improper trading and its harmful effect on investors."
DWS Dreman Fund to Close
On Dec. 29, DWS Dreman Small Cap Value
Federated to Offer Fund Marrying Munis to High-Yielding Stocks
Federated Investors has filed with the SEC to launch the Federated California Muni and Stock Advantage Fund, which, as the name implies, will bring together municipal bonds from the state of California and dividend-paying stocks (not necessarily California-based).
The firm is not the first to marry this unusual combination of asset classes. Nuveen Balanced Municipal and Stock