Lawyer Wants SEC

Articles aboutFund Democracy

Eric Winig, Lawyer Wants SEC to Probe Mutual Funds, Washington Business Journal (Dec. 15 - 21, 2000).

Abstract: In this article, the Journal reports on Fund Democracy's campaign to improve mutual fund disclosure, and the difficulties the SEC will encounter in trying to prove a "portfolio pumping" or "window dressing" case against a fund portfolio manager.

Portfolio pumping occurs when a portfolio manager buys stocks the fund already owns in order to give the fund an end-of-period performance boost. Window dressing entails buying top-performing stocks just before portfolio disclosure dates to make a fund's portfolio look better to shareholders. The SEC created a task force earlier this year to investigate portfolio pumping and window dressing, but proving these practices requires evidence of the portfolio manager's intent, which may be difficult to uncover.

Fund Democracy, along with the Financial Planning Association, ten consumer groups, and the National Association of Investors, has pressed the SEC to require more frequent disclosure of fund portfolios. Improved disclosure would improve transparency and better enable investors to determine whether portfolio pumping or window dressing is occurring. "I'm not a big fan of making law by enforcement," says Mercer Bullard, Fund Democracy's founder and CEO. "Why not just leave [deterring these practices] to the market?"

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