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MutualFundWire.com
The insiders' edge for 40 Act industry executives!
an InvestmentWires' Publication |
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Wednesday, September 24, 2008 Regions Settles Probe on AmSouth Funds for $11 Million Regions Financial Corp., which bought AmSouth Bank in 2006,will plunk down $11.4 million to settle allegations by the SEC that AmSouth Bank and AmSouth Asset Management defrauded AmSouth mutual funds by secretly using a portion of administrative fees paid by shareholders for marketing and other expenses, including a country club membership for an AmSouth executive. The SEC alleged that AmSouth had entered into improper and undisclosed side agreements with Bisys Fund Services. Under those agreements, Bisys allegedly rebated $16 million of its total $49 million administration fee for AmSouth to pay marketing expenses in exchange for AmSouth recommending Bisys as the administrator of the funds. According to the SEC, the money was also used for expenses unrelated to marketing, including the salary, bonus, benefits and country club membership of the president of AmSouth Funds. AmSouth Bank and AmSouth Asset Management neither admitted nor denied the SEC's findings. In June 2005, AmSouth announced it was exiting the fund business (see The MFWire, June 28, 2005), with Pioneer Investment Management picking up the bank's 23-fund portfolio in a deal that closed in September of that year (see The MFWire, September 26, 2005). In August 2005, AmSouth revealed that it had received a Wells notice from the SEC regarding potential violations in the bank's mutual fund business (see The MFWire, August 25, 2005). Bisys Fund Services in September 2006 agreed to pay $21 million to settle SEC allegations that it assisted 27 fund firms in a scheme that diverted shareholder assets into the pockets of fund advisors (see The MFWire, September 27, 2006). AmSouth had reimbursed fund shareholders $2 million. Press Release from the SEC Washington, D.C., Sept. 23, 2008 — The Securities and Exchange Commission today issued an enforcement action against AmSouth Bank and AmSouth Asset Management (AmSouth) for defrauding AmSouth mutual funds by secretly using a portion of administrative fees paid by fund shareholders for marketing and other unrelated expenses that should have been paid by AmSouth itself. The SEC's order finds that AmSouth entered into improper and undisclosed side agreements with BISYS Fund Services (BISYS), the administrator of the AmSouth Funds. BISYS rebated approximately $16 million of its total $49 million administration fee for AmSouth to pay marketing expenses, with the understanding that AmSouth would continue to recommend BISYS as an administrator for the AmSouth Funds to the AmSouth Funds' board of trustees. The SEC's order also finds that money was used to pay expenses entirely unrelated to marketing, including the salary, bonus, benefits, and country club membership of the president of the AmSouth Funds. AmSouth, now part of Regions Bank, agreed to settle the SEC's enforcement action by paying a total of $11.4 million, which will be placed in a Fair Fund that Regions Bank will distribute to the funds, now managed by the Pioneer Group. "This is the Commission's first case against a mutual fund adviser that secretly used a portion of the administrative fees paid by the fund's shareholders to pay for marketing expenses that should have been paid out of the adviser's own pocket," said Linda Chatman Thomsen, Director of the SEC's Division of Enforcement. "The Commission demands transparency in mutual fund disclosures and will not tolerate advisers that seek to hide their own marketing expenses in other types of fees charged to fund shareholders." Rosalind R. Tyson, Director of the SEC's Los Angeles Regional Office, added, "AmSouth breached its fiduciary duty to investors of the AmSouth Funds with these secret side agreements. The Commission will not stand for fiduciaries like AmSouth placing their own interests before the interests of the funds they advise." The SEC's order finds that in addition to the side agreements, BISYS and AmSouth agreed that in exchange for AmSouth recommending to the trustees that BISYS provide securities lending services to the AmSouth Funds, BISYS would rebate some of the fees it charged the funds for securities lending back to AmSouth in the guise of consulting fees. Under this consulting agreement, AmSouth purportedly provided general marketing advice to BISYS to market AmSouth's own funds. AmSouth received $1.161 million in total consulting fees. Neither the existence of side and consulting agreements nor the terms of these agreements were disclosed to the AmSouth Funds' independent trustees or to the Funds' shareholders. In settling the Commission's charges, AmSouth Asset Management agreed to cease and desist from committing or causing any violations and any future violations of Sections 206(1) and 206(2) of the Investment Advisers Act, and AmSouth Bank and AmSouth Asset Management agreed to cease and desist from committing or causing any violations and any future violations of Sections 12(b) and 34(b) of the Investment Company Act and Rule 12b-1 thereunder. AmSouth agreed to pay a total of $11.4 million, consisting of disgorgement of $7.7 million in ill-gotten gains, prejudgment interest of $2.2 million, and a $1.5 million penalty. AmSouth Bank and AmSouth Asset Management consented to the issuance of the order without admitting or denying any of the findings. The Commission's investigation is continuing. Press Release from Regions BIRMINGHAM, Ala.--(BUSINESS WIRE)--Regions Financial Corporation (NYSE: RF) has resolved an inquiry by the Securities and Exchange Commission regarding a previous arrangement between AmSouth Bank, AmSouth Asset Management and BISYS Fund Services, Inc. (“BISYS”), an outside company which provided fund administration and other services to the former AmSouth Funds and many other mutual fund families. Regions cooperated fully and extensively with the SEC in this investigation and is pleased to resolve the matter. The arrangements in question date back to 1999 and involved a portion of the administration fee paid by the funds to BISYS being rebated to AmSouth to pay for marketing and other expenses related to the AmSouth Funds. The arrangements ended in 2004 and AmSouth disclosed the SEC inquiry in 2005. In September 2006, the SEC reached a settlement with BISYS Fund Services regarding its marketing arrangements related to 27 mutual fund families, including the AmSouth Funds. BISYS agreed to pay $21 million in reimbursements and a penalty under the settlement. As a result of its own settlement, Regions will pay a $1.5 million civil money penalty and reimburse mutual fund shareholders approximately $7.8 million plus $2.2 million in interest. All of these expenses were fully reserved in prior quarters. AmSouth had previously reimbursed fund shareholders $2 million, which was expensed in 2005. About Regions Financial Corporation Regions Financial Corporation is a member of the S&P 100 Index and Forbes Magazine's "Platinum 400" list of America's best big companies. With $144 billion in assets, Regions is one of the nation’s largest full-service providers of consumer and commercial banking, trust, securities brokerage, mortgage and insurance products and services. Regions serves customers in 16 states across the South, Midwest and Texas, and through its subsidiary, Regions Bank, operates over 1,900 banking offices and approximately 2,400 ATMs. Its investment and securities brokerage trust and asset management division, Morgan Keegan & Company Inc., provides services from some 400 offices. Additional information about Regions and its full line of products and services can be found at www.regions.com. Printed from: MFWire.com/story.asp?s=19421 Copyright 2008, InvestmentWires, Inc. All Rights Reserved |