By Ross Kerber and Aruna Viswanatha
BOSTON/WASHINGTON May 2 Trustees for a pair of
Nebraska mutual fund trusts and two fund services firms on
Thursday settled civil charges alleging they provided misleading
disclosures, with the latest case arising from regulators'
increased scrutiny of fee arrangements for asset managers.
Shareholder reports issued by Northern Lights Fund Trust and
the Northern Lights Variable Trust misrepresented or omitted
details the trustees considered in approving investment advisory
contracts, the Securities and Exchange Commission said. The two
trusts included as many as 71 series of mutual funds, the SEC
The SEC's action stemmed from a broad review of fee
arrangements in the fund industry by the agency's asset
management investigative unit. In December, for instance, the
SEC charged eight board members of funds run by brokerage firm
Morgan Keegan, alleging they failed to oversee managers who
inaccurately priced assets.
Mercer Bullard, a law professor at the University of
Mississippi who follows the fund industry, said the SEC's latest
action shows outside directors of other fund complexes should
also expect more scrutiny.
"Independent directors are in the cross-hairs," he said.
For instance, the SEC's charges against Northern Lights
cited industry fee comparison data which it said trustees
glossed over, signaling that the agency is focusing more on
pricing matters, Bullard said. If he were a fund firm attorney,
Bullard said, "I would be concerned about that as a shot across
Both the Morgan Keegan case and the Northern Lights matter
show the increasing effort being made by the SEC's investigative
unit, which has gotten more resources in recent years, said
Stephen Crimmins, a K&L Gates attorney representing the Morgan
Keegan funds' six independent directors.
"That's why we're seeing cases that deal with more technical
matters than we saw in past," Crimmins said. All eight trustees
in the Morgan Keegan case have reached a settlement agreement
with SEC staff, which must still be approved by the commission.
Terms are not yet available, he said.
In the latest case, the funds' administrator, Gemini Fund
Services, and its compliance firm, Northern Lights Compliance
Services, neither admitted nor denied the charges, but each
agreed to pay a $50,000 penalty.
The firms and the five fund trustees also agreed to engage
an independent compliance consultant to address the violations
the SEC identified, the agency said.
"Determining the terms of the investment advisory contract,
especially compensation of the adviser, is one of the most
critical duties of a mutual fund board," said George Canellos,
who co-leads the SEC's enforcement division.
"We cooperated fully with the SEC in this inquiry, and are
pleased that the matter has now been resolved," said James F.
Moyle, a lawyer for the firms and the trustees.
Ian Roffman, an attorney for Nutter McClennen & Fish, said
the latest case could draw particular notice among mid-sized
fund complexes that, like the Northern Lights trusts, use many
different advisers and sub-advisers.
"The SEC is sending a clear message that they're looking at
fund trustees to ensure that funds are actually fulfilling their
obligations and not simply acting in a perfunctory manner,"