SEC Chairman Blasts Personal Trading by Fund Managers

Securities and Exchange Commission Chairman Arthur Levitt warned the mutual fund industry Wednesday he’s growing increasingly concerned about personal trading by money managers who oversee funds for more than 40 million Americans.

The $3-trillion mutual fund industry “must tackle the issue that refuses to go away--personal trading by fund insiders,” Levitt said in a speech to about 1,800 mutual fund officials at the annual meeting of the Investment Company Institute, a trade group.

Levitt’s call, which stopped short of a demand for a total ban on personal trading by fund managers, comes as the fund industry faces increased scrutiny from the SEC about the personal trading practices of money managers. In the past two years, several money managers have been fined for allegedly violating rules that restrict the trading of securities for their personal accounts.

When the SEC chairman raises red flags, the securities industry salutes, often changing practices rather than waiting for regulators to make new rules. Levitt’s warnings about Wall Street’s use of political contributions to gain municipal bond underwriting assignments and his calls for greater disclosure in mutual fund marketing documents led to voluntary changes in these industries.

“We’ll see a tightening on a firm-specific basis of codes of ethics regarding personal trading,” said John J. Brennan, Vanguard Group’s chief executive. “It’s a big issue because the foundation of the business is trust. We don’t think it’s necessary to ban personal trading to have an integrity-laden fund group.”