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This page was last updated on December 1, 2000. Articles by Fund Democracy: Archives SEC May Hold Independent Directors Responsible for Heartland Debacle, TheStreet.com (Dec. 6, 2000).
Abstract: The independent directors of two Heartland Advisors muni bond funds soon may have to explain to the Securities and Exchange Commission how they allowed pricing of the funds' portfolio securities to get so out of whack that the funds lost a combined $62 million in value in a single day. In a speech last month to a mutual fund directors conference, Paul Roye, head of the agency's funds division, hinted that the directors may be squarely in the agency's crosshairs. Roye quoted former Supreme Court Justice -- and former SEC Chairman -- William O. Douglas' description of the agency's role as akin to keeping a "shotgun, so to speak, behind the door, loaded, well-oiled, cleaned, ready for use, but with the hope that it would never have to be used." "Unfortunately," Roye concluded, "Douglas' proverbial shotgun in the closet sometimes has to be fired at fund directors." In his speech, Roye repeatedly emphasized the responsibility of independent fund directors to ensure the accuracy of their funds' net asset values, and pointedly reminded his audience of recent agency cases brought against independent directors for pricing violations. The cause of the Heartland funds' pricing problems may have been that the Heartland directors' oversight fell short of agency standards, which require funds that use an independent pricing service to consider other factors, such as prices provided by other pricing services. (View the full text of this article.) |