The Securities and Exchange Commission issued an enforcement action against AmSouth Bank and AmSouth Asset Management for defrauding AmSouth mutual funds by secretly using a portion of administrative fees paid by shareholders for marketing and other unrelated expenses.
The SEC’s order finds that AmSouth should have paid those expenses itself. AmSouth was also found to have entered into improper and undisclosed side agreements with BISYS Fund Services (BISYS), the administrator of the AmSouth Funds. BISYS rebated approximately $16 million of its total $49 million administrations fee for Am South to pay marketing expenses. As a result, AmSouth would continue to recommend BISYS as an administrator for the AmSouth Funds to the AmSouth Funds’ board of trustees.
The SEC’s order also found that the money was used to pay expenses entirely unrelated to marketing, including the salary, bonus, benefits, and country club membership of the president of the AmSouth Funds.
AmSouth, now part of Regions Bank, agreed to settle the SEC’s enforcement action by paying a total of $11.4 million, which will be placed in a Fair Fund that Regions Bank will distribute to the funds, now managed by the Pioneer Group.
“This is the Commission’s first case against a mutual fund adviser that secretly used a portion of the administrative fees paid by the fund’s shareholders to pay for marketing expenses that should have been paid out of the adviser’s own pocket,” said Linda Chatman Thomsen, Director of the SEC’s Division of Enforcement. “The Commission demands transparency in mutual fund disclosures and will not tolerate advisers that seek to hide their own marketing expenses in other types of fees charged to fund shareholders.”