GAO Report Says SEC Now Moving Quickly Against Fund Abuses

by Glen Shapiro, LawAndTax-News.com, New York

26 April 2004

In a report released last week, the US General Accounting Office (GAO) revealed that although the Securities and Exchange Commission (SEC) was beaten to the discovery of instances of mutual fund trading abuse by New York's Attorney General, Eliot Spitzer, the agency is now moving quickly to eliminate suspect trading practices and punish offenders.

According to the GAO report, the SEC did not uncover the initial market timing abuses which sparked the recent crackdown due to a combination of scarce resources and staffing constraints.

By way of explanation, it revealed that staffing levels at the regulatory agency had failed to keep up with the dramatic growth in mutual funds which occurred in the 1990s, meaning that some US fund firms were being examined once every twelve to twenty-four years.

However, the GAO went on to add that "since these abuses have come to light, SEC and NASD, which oversees the broker-dealers that sell fund shares, have acted vigorously to address inappropriate practices in the mutual fund industry".

The Accounting Office report went on to announce that the SEC has recently brought 15 enforcement actions against fund firms and their principals with regard to suspect trading practices, and has put forward nearly a dozen proposals for rule changes to address problems within the mutual fund industry.

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