The Securities and Exchange Commission is launching a sweeping investigation into the personal trading records of the nation’s mutual fund managers to see if they have engaged in improper trading of their own funds’ shares.
As regulators and lawmakers nationwide delve into the embattled fund industry, the SEC plans to make trading-record checks part of its routine examinations, sources told The Post.
The SEC has requested personal trading information for “access” individuals – those people with access to insider information about a fund’s stock holdings – from all the mutual funds it is investigating as part of its late day trading and market timing investigation.
Such routine inquiries mark a change from the agency’s previous practice of simply looking at a manager’s personal records for stocks and bond deals.
Federal and state investigators have brought charges against a handful of top mutual fund officials for timing their own funds – a violation of the manager’s fiduciary duty.
The SEC and New York Attorney General have charged two former Putnam Investments managing directors, the CEO of Invesco Funds and two Prudential brokers for trading or arranging trading in the funds they managed.
Previously the SEC required that portfolio managers report stock and bond transactions on a quarterly basis to the fund’s compliance department, which would look at brokerage records to make sure the reports matched – and that the managers were not front-running the stocks they traded in.
Now the SEC will examine how managers trade in their own funds to see if they are timing their own funds. “The idea that a portfolio manager would violate their fiduciary duty so blatantly and trade on what is insider information was, for most people in the industry, shocking,” said JoAnn Strasser, a partner at Thompson Hine – a law firm which represents about 25 fund groups. “Now I am seeing some boards adopt that practice without the rule.”
SEC Chairman William Donaldson said in early December that the commission will consider proposing a rule in mid-January to require portfolio managers to report their personal trading in the mutual funds they manage.
Lori Richards, director of compliance and inspections for the SEC, declined to comment.