Filling in the Blanks of Spotty Fund Disclosure

September 23, 2014

The perennial compliance concern of disclosure has lately gained renewed attention from the Securities and Exchange Commission and others. As a result, fund directors should consider strengthening their level of oversight in this important area.

The SEC’s ongoing review of revenue-sharing deals between mutual funds and intermediaries has reportedly identified cases of spotty disclosures, which in turn increases the possibility of enforcement actions. Industry experts say the inquiry is a possible sign that the commission will pay closer attention to disclosure-related issues in the upcoming months. In addition, mutual funds continue to be subject to litigation arising, at least in part, from allegations of deficient disclosures.

The consequences of a disclosure-related lapse can be significant to a fund board. After all, directors oversee the accuracy of disclosures to investors. They must have a firm understanding of all laws shareholders use to recover losses that stem from faulty disclosures, such as a misstatement or omission of a material fact in a fund’s registration statement or prospectus.

To help directors prepare for rigorous disclosure reviews, this article identifies four emerging disclosure issues that warrant deeper attention today.