The following are summaries of key developments in the investment management industry. More detailed coverage of these and other topics can be found here.

Trend: Advisers Attacked for Overcharges on Subadvised Funds

In the latest of several lawsuits alleging excessive mutual fund fees for subadvised funds, shareholders recently sued Harbor Capital Advisors over amounts being paid in relation to advising the Harbor International Fund. The suit alleges that the subadviser, Northern Cross, did most of the work while Harbor Capital Advisors nonetheless retained $225 million in 2012.

SEC Warns of Fixed Income Fund Risk

The SEC’s Division of Investment Management recently issued guidance to fund advisers and boards on the risks of changing fixed income market conditions. It warns of the importance of sound risk management and disclosure practices by fixed income mutual funds and exchange-traded funds (ETFs), particularly as the Federal Reserve Board implements the end of "quantitative easing." The guidance also recommends several steps that fixed income fund advisers may consider taking and suggests that fund boards may want to consider discussing some of these steps with fund advisers.

SEC Fines Adviser over Social Media Advertising

In a recent settlement, the SEC delivered a message that social media statements are not considered different from any other statements and therefore carry the same risks and regulations. The settled claim against Mark Grimaldi of Navigator Money Management was over allegedly misleading tweets about the firm's performance record. The SEC charged Grimaldi with making false statements and "cherry-picking" information in a misleading fashion in an effort to attract new clients via Twitter.

PCAOB Evaluating Significant Changes to Auditor's Report

The Public Company Accounting Oversight Board (PCAOB) is evaluating comments on its 2013 proposal for significant changes to the auditor's report. The proposed standard would require the auditor to report a wider range of information specific to the particular audit and auditor. Among other things, the proposal would require:

  • Comments from the auditor in a separate section of the audit report regarding the "critical audit matters" (CAM) in the audit of the current period's financial statements based on the results of the audit or evidence obtained
  • A statement containing the year the auditor began serving consecutively as the company's auditor
  • A statement that the auditor is a public accounting firm registered with the PCAOB and is required to be independent from the company in accordance with U.S. federal securities laws and the applicable rules and regulations of the SEC and the PCAOB
  • Enhancements to existing language in the auditor's report related to the auditor's responsibilities for fraud and the notes to the financial statements

Final Volcker Rule Adopted

The final Volcker Rule, which implements Section 13 of the Bank Holding Company Act, was released in December―more than two years after it was originally proposed. The rule's principal idea is to prevent banks from taking undue risks while enjoying the benefits of the public subsidy conferred by insured deposits. It prohibits a "banking entity" from two broad categories of activities:

  • Engaging in proprietary trading of financial instruments for its own trading account with the idea of profiting from short-term price movements
  • Owning and sponsoring hedge funds and certain private equity funds

The rule is largely unchanged from the original proposal. It gives some relief, however, to smaller institutions while expanding the obligations of larger institutions. Large institutions are subject to expanded corporate governance and oversight requirements for boards of directors, CEOs, and senior management, including a requirement for an annual CEO certification.

The compliance date for most of the rule's requirements is July 21, 2015.

To learn more about these developments and other investment management news, please contact a member of the Ballard Spahr Investment Management Group or the attorney with whom you regularly work.



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This alert is a periodic publication of Ballard Spahr LLP and is intended to notify recipients of new developments in the law. It should not be construed as legal advice or legal opinion on any specific facts or circumstances. The contents are intended for general informational purposes only, and you are urged to consult your own attorney concerning your situation and specific legal questions you have.

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