Filling in the Blanks of Spotty Fund Disclosure

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.