Ex-Official at SEC to Help Steer Fund Firm
The former chief of the Securities and Exchange Commission’s mutual fund oversight unit said Monday that he would take an executive post at the parent firm of Los Angeles-based American Funds, which is embroiled in legal battles with the SEC and other regulators.
Paul F. Roye, who left the SEC in March after six years as head of the investment management division, will be a senior vice president at Capital Research & Management, which manages the $670-billion American Funds mutual fund group. His duties will include ensuring that the funds are in compliance with federal and state laws.
Roye’s move to Capital Research comes as the SEC, after more than a year of investigation, is in the final stages of determining whether to charge the company with wrongdoing for certain revenue-sharing arrangements with some brokerages that sell American Funds.
Capital Research already is fighting related charges filed against it this year by California Atty. Gen. Bill Lockyer and by the NASD, the securities industry’s self-regulatory agency.
Roye, 51, said he was not hired to advise or assist Capital Research in the pending cases. Federal ethics rules ban former SEC employees from representing private clients in SEC matters for two years after leaving the agency, if the employee had direct involvement in the matters.
Some securities industry attorneys said the presence of Roye, who is well-respected in the fund and legal industries, could help bolster Capital Research’s image -- whether the company chooses to continue fighting regulators or reach settlements with them.
“This could show they’re serious about compliance and doing the right thing,” said Jay Baris, a specialist in mutual fund law at Kramer Levin Naftalis & Frankel in New York.
As head of the SEC’s investment management unit, Roye oversaw regulation of the fund industry but was not directly involved in the agency’s investigations of Capital Research and other fund firms. Probes and legal cases are handled by the SEC’s enforcement division.
Nonetheless, Roye said, “I will be walled off from that [at Capital Research]. It wasn’t my responsibility at the SEC, but from a perception standpoint this is the way to go.”
Roye said he chose Capital Research over other job options because he was impressed with the company’s 70-year history and its “approach to the business,” including its emphasis on long-term investing. “That’s the kind of firm I want to be associated with,” he said.
Roye was recruited by, and will report to, Paul Haaga, executive vice president of Capital Research and its point man with regulators. Roye and Haaga worked together at Washington law firm Dechert in the early 1980s.
Haaga said Roye would be “part of our internal team that makes sure compliance issues are addressed.” Capital Research is part of privately held Capital Group Cos.
Under Roye’s watch, the fund industry came under heavy scrutiny as some major scandals unfolded, beginning with the “market timing” and other trading abuses exposed by New York Atty. Gen. Eliot Spitzer in 2003.
Roye oversaw a rash of new rules aimed at restoring the industry’s credibility, said Barry Barbash, who preceded Roye as head of the SEC’s investment management arm and now is a lawyer in private practice. Roye’s knowledge should be valuable to American Funds’ directors in coping with added oversight obligations, Barbash said.
The legal cases brought by the NASD and Lockyer against Capital Research, and the SEC’s probe, center on arrangements under which the firm in recent years made certain marketing-related payments to brokerages that sell its funds. The NASD alleges the arrangements were improper; Lockyer alleges that Capital Research failed to adequately disclose the payments.
Capital Research, the best-selling fund company since 2002, has denied wrongdoing and is fighting both regulators.
The SEC has told the firm that it expects to file its own case.