‘Soft Dollar’ Violations
Parnassus Investments, an investment advisor firm that runs one of the largest “socially responsible” U.S. mutual funds, improperly used “soft dollar” payments received from a brokerage, a U.S. Securities and Exchange Commission judge found Friday.
Soft dollars are incentives that brokerages pay to investment advisors that steer trading business their way.
The administrative law judge, Richard G. Mahony, issued a cease-and-desist order, telling the San Francisco firm to stop securities law violations, after also finding that Parnassus overstated the fund’s net asset value and made an unauthorized loan.
Parnassus, which has about $300 million under management, said it might file an appeal with SEC commissioners.
“We don’t think we’ve done anything wrong,” said the firm’s founder and president, Jerome Dodson. “As a socially responsible fund, it’s important not to have a cloud on our record. But we have to decide if an appeal is worth the effort.”
The judge found that Parnassus used $67,000 in soft-dollar payments for office accounting and other administrative functions, rather than for investment research. Soft dollars are legal only if an investment advisor uses them in connection with investment decision-making to benefit its clients.
“The soft-dollar arrangement created a potential conflict of interest and may well have affected Parnassus Investments’ ability to choose the fund’s broker-dealer with the complete objectivity that [the rule] demands,” the order said.
Mahony described the firm’s offenses as technical violations of U.S. securities laws that “resulted in minimal harm to others and afforded [the firm] no unjust enrichment.”
The Parnassus Fund takes social factors into account when deciding which company stocks it will buy, Dodson said. It aims to avoid investments in alcohol, tobacco and gambling companies, while seeking out companies that treat their employees well, protect the environment and make charitable contributions. The fund’s biggest investments are in Western Digital Corp., Intel Corp. and Quantum Corp., he said.
