The following are summaries of key developments in the investment management industry. Full articles covering these and other topics can be found by following this link.

Schwab Petitions Supreme Court to Review Decision that Affects Mutual Funds

Schwab Investments (Schwab) has petitioned the U.S. Supreme Court to review a decision which found Schwab liable for making risky investments through its Total Bond Market Fund in collateralized mortgage obligations (CMOs) despite fund guidelines that appeared to prohibit such investments.

The Ninth Circuit Court of Appeals’ decision in Northstar Financial Advisors, Inc., v. Schwab Investments ruled in favor of Northstar, which sued Schwab, its trustees and advisory group Charles Schwab Investment Management Inc., on behalf of investors, alleging the brokerage operation had deviated from its stated investment strategy of matching its Schwab Total Bond Market Fund to a bond index run by Lehman Brothers Holdings Inc. (Lehman Brothers).

In its petition for certiorari from the Supreme Court, Schwab indicates that the Court of Appeals’ decision in this case “threatens to expand significantly” the lawsuits brought against mutual funds. The Investment Company Institute (ICI) has filed an amicus brief supporting Schwab’s position and arguing that the ruling would have widespread adverse effects on funds and their shareholders.

Proposed Anti-Money Laundering Rules Applicable to Investment Advisers

The Financial Crimes Enforcement Network (FinCEN) recently issued proposed anti-money laundering (AML) rules (the Proposed Rules) that would apply to any investment adviser registered or required to be registered as an investment adviser with the Securities and Exchange Commission (the SEC). This would include investment advisers to certain hedge funds, private equity funds, and other private funds.

If adopted as proposed, the Proposed Rules would require covered investment advisers to establish AML programs, report suspicious activity to FinCEN, and comply with certain other reporting and recordkeeping requirements. The Proposed Rules would subject investment advisers to recordkeeping requirements under the Bank Secrecy Act (the BSA) by including investment advisers in the definition of “financial institution” in the regulations that implement the BSA.

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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