According to the SEC’s order, MSIM also was responsible for preparing and filing the fund’s annual and semi-annual reports to shareholders. The fund’s filings stated that for an advisory fee, AMMB provided MSIM with “investment advice, research and assistance.” Since AMMB was not providing any advisory services, MSIM prepared and filed false information in the annual and semi-annual reports.
“Not only did MSIM’s internal controls fail in allowing this purported services arrangement to go on, but the firm repeatedly issued reports to investors that inaccurately represented those services,” said Eric I. Bustillo, Director of the SEC’s Miami Regional Office. “MSIM clearly lost sight of this sub-adviser.”
According to the SEC’s order, the fund’s sub-adviser contract with AMMB was terminated in early 2008 after the SEC’s examination staff inquired into the fund’s relationship with the sub-adviser.
The SEC’s order finds that MSIM willfully violated Sections 15(c) and 34(b) of the Investment Company Act and Sections 206(2) and (4) of the Investment Advisers Act of 1940, and Rule 206(4)-7 thereunder. Without admitting or denying the SEC’s findings, MSIM agreed to a censure and to cease and desist from committing or causing any violations and any future violations of those provisions. MSIM agreed to repay the fund $1.845 million for the sub-adviser’s fees and pay a $1.5 million penalty. MSIM also agreed to implement policies and procedures specifically governing the Section 15(c) process and its oversight of service providers.
The SEC’s case was handled by Chad Alan Earnst, Christine Lynch, and Jessica Weiner, members of the Asset Management Unit in the Miami Regional Office, and Tonya Tullis, staff accountant. Karen Stevenson, Susan Schneider, and Dennis Delaney from the SEC’s Washington D.C. office conducted the related examinations. The SEC acknowledges the assistance of the Securities Commission of Malaysia and the Monetary Authority of Singapore.
The SEC’s investigation is continuing.