Fund Democracy Insights

Resource Materials

April 2002

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The April 2002 issue of Fund Democracy Insights (1) reviews the rising profile of fund auditors caused by fallout from Enron, civil lawsuits against fund auditors, and fund auditors' increasingly complex pricing responsibilities, and (2) proposes needed reforms in the SEC's exemptive application process.

Table of Contents

Links to resource materials (.pdf files require Adobe Acrobat for viewing):

Fund Auditors' Rising Profiles

• Shareholder Ratification of Independent Fund Auditor:
  • Section 32 of the Investment Company Act (misnumbered section 31)
  • Rule 32a-4 under the Investment Company Act
  • Role of Independent Directors of Investment Companies, Investment Company Act Release No. 24082, Part II.C (Oct. 14, 1999) (proposing rule 32a-4 eliminating requirement that shareholders ratify selection of fund auditor if fund has an audit committee comprised solely of independent directors)
  • Role of Independent Directors of Investment Companies, Investment Company Act Release No. 24816 (Jan. 2, 2001) (adopting rule 32a-4)
• News Articles:
  • Karen Damato, Do Auditing Conflicts Extend to Mutual-Fund Companies? Wall Street Journal (Mar. 14, 2002) (available to WSJ subscribers)
  • Tom Lauricella, Private Placements Beef Up Van Wagoner Funds' Value, Wall Street Journal (Dec. 11, 2001) (available online to WSJ subscribers)
  • Tom Lauricella, Van Wagoner's Valuation Policy is Criticized by Firm's Auditors, Wall Street Journal (Mar. 4, 2002) (available to WSJ subscribers)
  • Karen Damato, Cornerstone Group is Liquidated After Dispute Over Bond Values, Wall Street Journal (Mar. 7, 2002) (available to WSJ subscribers)
  • Gavin Daly, Pioneer to Drop Andersen as Funds' Auditor, Ignites.com (Apr. 4, 2002) (available to Ignites.com subscribers)
  • Alison Sahoo, SEC: Firm Overvalued Fund by 600%, Ignites.com (Feb. 1, 2002) (available to Ignites.com subscribers)
  • Elizabeth Wine, Van Wagoner Capital Faced with Series of Class Action Lawsuits, FT.com (Jan. 9, 2002)
  • Cassell Bryan-Low, Auditors Still Perform Nonaudits Despite Concerns About Conflicts, Wall Street Journal (Apr. 3, 2002) (available to WSJ subscribers)
• KPMG Enforcement Action:
• In the Matter of KPMG LLP, Investment Company Act Release No. 25360 (Jan. 14, 2002)
• SEC Censures KPMG for Auditor Independence Violation, SEC Press Release (Jan. 14, 2002)
• Judith Burns & Jonathan Weil, KPMG Draws an SEC Censure for Improper AIM Investment, Wall Street Journal (Jan. 15, 2002) (available to WSJ subscribers)
• Letter from Douglas Scheidt, Chief Counsel and Associate Director, Division of Investment Management, SEC, to Craig Tyle General Counsel, Investment Company Institute (Apr. 30, 2001)
• Letter from Douglas Scheidt, Chief Counsel and Associate Director, Division of Investment Management, SEC, to Craig Tyle, General Counsel, Investment Company Institute (Dec. 8, 1999)
• Corporate and Auditing Accountability, Responsibility and Transparency Act of 2002 H.R. 3763, 2d Sess., 107th Cong. (Feb. 14, 2002)
• Harvey L. Pitt, Oral Testimony Concerning Accounting and Investor Protection Issues Raised by Enron and Other Public Companies, before the Senate Committee on Banking, Housing and Urban Affairs (Mar. 21, 2002)
• Harvey L. Pitt, Written Testimony Concerning Accounting and Investor Protection Issues Raised by Enron and other Public Companies, before the Senate Committee on Banking, Housing and Urban Affairs (Mar. 21, 2002)
• Definitive Proxy, Torray Fund (Mar. 29, 2002) (illustrative disclosure of fees paid to fund's auditor by fund affiliates in proxy for election of fund directors)
• Report and Recommendations of the Blue Ribbon Committee on Improving the Effectiveness of Corporate Audit Committees (1999)(.pdf file)
• Audit Committee Disclosure, Exchange Act Release No. 42266 (Dec. 22, 1999)
• Revision of the Commission's Auditor Independence Requirements, Investment Company Act Release No. 24549 (June 30, 2000) (proposing rule amendments regarding auditor independence)

Reforming the Exemptive Applications Process

• SEC Operations: Increased Workload Creates Challenges, Government Accounting Office (Mar. 2002)(.pdf file)
• Rulemaking for EDGAR System, Investment Company Act Release No. 24400 (Apr. 24, 2000) (amending EDGAR rules without requiring electronic filing of exemptive applications)
• Rulemaking for EDGAR System, Investment Company Act Release No. 24319, Part I.L (Feb. 25, 2000) (requesting comment on whether exemptive applications should be filed electronically)
• Securities and Exchange Commission, Inspector General, Applications for Exemptive Relief, Audit Report No. 230 (Mar. 29, 1996)
• Expedited Procedure for Exemptive Orders and Expanded Delegated Authority, Investment Company Act Release No. 19362 (Mar. 26, 1993)
• Protecting Investors: A Half Century of Investment Company Regulation, Division of Investment Management, Securities and Exchange Commission (May 1992) (available at the SEC library)
• Request for Comments on Reform of the Regulation of Investment Companies, Investment Company Act Release No. 17534 (June 15, 1990) (abstract)

Worth Reading on the Internet

• Paul F. Roye, Mutual Fund Management Taking Responsibility, Maintaining Trust and Influencing Positive Change, Remarks before the 2002 Mutual Funds and Investment Management Conference (Mar. 25, 2002)
• Letter from Craig S. Tyle, General Counsel, Investment Company Institute to Diane G. Klinke, General Counsel, Municipal Securities Rulemaking Board (April 1, 2002) (recommending that MSRB consider requiring disclosure by broker-dealers selling 529 plans that plans offered by an investor's home state may offer favorable tax treatment)
• Investment Company Institute, U.S. Household Ownership of Closed-End Funds in 2001, 11 Fundamentals 1 (Mar. 2002) (attributing principle cause of decline of closed-end funds' assets from $165 billion to $138 billion to conversions to open-end funds)(.pdf file)
• Lori Richards, Furthering Good Compliance: Current Areas of Focus in SEC Examinations in SEC Examinations (Apr. 8, 2002) (discussing focus in fund exams on fair value pricing, error correction, independent director rule compliance, fund names and money laundering)

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This page was last updated on April 23, 2002.