SEC Seeks to Better Show Costs of Funds

The Securities and Exchange Commission may require mutual funds to better spell out how much they pay to buy and sell securities and how these costs are passed along to investors.

The SEC voted unanimously Wednesday to seek comment from companies and the public to gather ideas for making transaction costs clear to investors.

The SEC also wants input on whether funds should be required to disclose more about credits that brokers give them. Most fund companies don’t disclose what they pay brokers or how much they get back in “soft-dollar” credits that are spent on everything from research to office rent.

Undisclosed transaction costs are a focus of the widening scandal that is roiling the $7.1-trillion mutual fund industry. The SEC said last month that it was investigating whether some fund companies that participated in a Morgan Stanley sales program improperly used soft-dollar credits to pay for promotional costs.

The SEC also proposed a rule that would require mutual funds to explain in their prospectuses what discounts an investor deserves when buying a large block of shares. The public will have 45 days to respond.

Also Wednesday, James Connelly, former vice chairman of Fred Alger Management Inc., was sentenced to one to three years in prison for concealing evidence of improper mutual fund trading, becoming the first executive sentenced in the industrywide probe.

Connelly, 40, admitted telling employees to get rid of e-mail messages containing information about improper fund trading by the Veras Investment Partners hedge fund. He pleaded guilty to a felony in New York State Supreme Court on Oct. 16.

In October, Connelly agreed to pay $400,000 to settle separate SEC civil charges that he permitted improper fund trading. He neither admitted nor denied wrongdoing in the SEC case.