Ethics Newsline®

WASHINGTON
With nearly half of the nation’s biggest mutual fund firms facing charges of fraud and misconduct, the U.S. Securities and Exchange Commission (SEC) last week adopted new rules designed to bolster the industry’s ethics.

After a unanimous vote by SEC commissioners last week, mutual fund executives now face a raft of new requirements, including a mandate that they report their personal holdings and trades in stocks and funds.

Executives and managers must get permission to participate in IPO launches and must report ethics and legal violations to their company’s compliance officer, general counsel, or similar executive, reported the Washington Post.

The new rules come as the SEC continues to ponder how best to rein in an industry facing rampant charges of market timing, illicit trading, and favoritism. Twelve of the nation’s 25 biggest mutual find firms have been sued by the SEC, noted the Post.

Proposed reforms still under debate include requiring all mutual funds to be chaired by people who do not manage the firm’s funds — a shift that would require changes at 80 percent of U.S. mutual fund firms. Also proposed: a rule upping the independent population on corporate boards from 50 percent to 75 percent, reported the New York Times.

“The relationship between an investment adviser and its clients is supposed to rest on a bedrock foundation of fiduciary principles,” SEC chairman William Donaldson said last week. “[A]dvisers owe their clients more than mere honesty and good faith. Recent experience suggests that all too many advisers were delivering much less.”