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Fund Times

Fund Times: SEC Launches New Mutual Fund Probe

Plus, MFS' new not-for-sale sign, Tweedy looks for value abroad, and more.

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The Securities and Exchange Commission recently launched an investigation into 27 mutual fund companies' alleged fraudulent arrangements with mutual fund administrative-service provider  Bisys (BSG), according to a report in the Oct. 26, 2006 Wall Street Journal. As we reported in late September, Bisys settled with the SEC for $21 million for its role in the alleged fraud.

The SEC alleges that between July 1999 and June 2004 Bisys and the fund companies participated in a fraudulent arrangement whereby Bisys 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. The SEC's original order in this matter suggests that Bisys may have paid as much as $230 million in kickbacks to fund firms in order to continue these business relationships.

Lawrence Jones does not own shares in any of the securities mentioned above. Find out about Morningstar’s editorial policies.

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