Hevesi, Spitzer Want Combined Pension Power of States Used for Reform

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Hevesi, Spitzer Want Combined Pension Power of States Used for Reform

By Susan Harrigan, Newsday.com

January 16, 2004

State officials controlling more than $400 billion in pension assets, joined by New York State Attorney General Eliot Spitzer, called yesterday for a menu of mutual fund reforms including fuller disclosure of management fees and costs.

At a news conference in Manhattan, Spitzer and the three executives, who included New York State Comptroller Alan Hevesi, said their goal is to use states' massive combined buying power to effect change. They said they will try to convince other pension funds and large institutional investors to require the reforms to be made by all mutual funds doing business with them.

"These guys have the trump card," Spitzer, whose September case involving improper mutual fund trading triggered widespread investigations of the $7.2-trillion fund industry, said following the conference. Compared to prosecution, he said, "the control of equity is a superior vehicle to solve these problems."

The U.S. Securities and Exchange Commission, which proposed its own set of rules for mutual fund reform on Wednesday, has criticized Spitzer for making an approximately $350-million cut in fees part of a settlement last month with Alliance Capital Management Holding LP. But in response to a question yesterday, Spitzer said that the Alliance settlement still could serve as a model for future settlements with his office.

Invesco Funds Group, one of more than 10 companies accused of improper trading activities by state and federal regulators, said Wednesday that it had decided not to contest the charges by Spitzer's office and the SEC.

And MFS, a mutual fund unit of Sun Financial Inc., is in settlement talks, a person familiar with that situation said yesterday. MFS disclosed last month that it could face charges by the SEC and Spitzer's office that it had made allegedly false disclosures about its trading policies.

Public pension funds are important customers of the mutual fund industry, employing them as investment managers and as administrators of employee retirement and college saving plans. They also own shares of companies that own mutual funds.

The "Mutual Fund Protection Principles" suggested yesterday by Hevesi, California Treasurer Phil Angelides and North Carolina Treasurer Richard Moore included some reforms that were already proposed by the SEC on Wednesday.