SEC Advises Fund Directors to Remain Vigilant

The U.S. Securities & Exchange Commission (SEC) continues to emphasize the role of mutual fund directors in managing liquidity and other risks. SEC Chair, Mary Jo White, told directors to make sure their funds address liquidity and other operational risks, while reassuring concerned parties that the proposed new rules would not force fund directors into daily management of funds or unduly penalize directors.

According to White, two major events in 2015 raised questions prompting the SEC to focus on rules to avoid future problems. First, a program developed by a systems software vendor developed a glitch affecting calculations of net asset values for mutual fund and ETF customers of BNY Mellon, forcing BNY Mellon to manually calculate the NAV resulting in potential errors. The second issue occurred in December, when Third Avenue Management’s $790 million junk bond Focused Credit Fund froze redemptions.

The SEC voted in favor of proposed liquidity requirements in September, which would require funds to create a liquidity plan and make sure a minimum amount of fund assets could be converted to cash in three days or less, in addition to adding liquidity disclosure requirements.

Although some have claimed that the SEC has acted “aggressively” in pursuing sanctions in recent matters, the SEC maintains that directors who act with “diligence and skill…should not fear enforcement.”

Did the SEC Step in Too Late for You?

If you lost money in a mutual fund, contact an experienced Los Angeles securities attorney as soon as possible to discuss your rights.