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Rating:SEC Smites Its First Email Routing List Email & Route  Print Print
Tuesday, September 22, 2015

SEC Smites Its First "Distribution-In-Guise" Target

News summary by MFWire's editors

Mary Jo White and Co just smote their first mutual fund shop over "improperly using mutual fund assets to pay for the marketing and distribution of fund shares." And no, it wasn't OpFunds.

Bridget Macaskill
First Eagle Investment Management
President, Chief Executive Officer
Yesterday the SEC unveiled a nearly-$40-million settlement with First Eagle Investment Management [profile] and its FEF Distributors affiliate, the first such charges and settlement under the SEC's multi-year "Distribution-In-Guise" sweep. First Eagle issued the following statement on settlement:

We are pleased to have reached an agreement with the SEC that will allow us to reimburse affected fund shareholders. The SEC has acknowledged First Eagle's cooperation, noting that we acted promptly to remedy the issue and that we immediately offered to return the money paid from the funds' assets. We sincerely regret this matter and have taken steps to strengthen our policies and procedures. Our core values center around the prudent stewardship of our clients' capital, and this extends to ensuring that all our practices meet the highest standards of integrity and accountability.


The SEC accuses First Eagle of using mutual fund assets to pay for distribution and marketing while calling it sub-TA fees instead of 12b-1s.

"First Eagle and FEF inappropriately used money belonging to the shareholders of the funds to pay for services clearly intended to market the funds and distribute their shares," states Andrew Ceresney, director of the SEC's enforcement division. "Unless part of a 12b-1 plan, the firm should bear those costs, not the shareholders."

The "Distribution-In-Guise" sweep has been looming over the mutual fund industry for several years, and this spring word leaked that the SEC was investigating OpFunds and at least one other fund firm. This summer the Wall Street Journal reported that more than 12 fund shops, including Franklin and JPMAM, were examined in the first stage of the sweep, though there was no word on how many of those examinations were referred to the enforcement division for possible action.

InvestmentNews, MarketWatch, the New York Times, Reuters, ThinkAdvisor, and the WSJ all reported on the settlement. 

Edited by: Neil Anderson, Managing Editor


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