The arm of the SEC Enforcement Division is long. Now we know that it reaches all the way around the globe to tropical Malaysia!
This week, the SEC sued AMMB Consultant Sendirian Berhad (AMC), a Kuala Lumpur-based investment adviser, for breach of its fiduciary duty under the Investment Company Act of 1940. Apparently, AMC has been charging the Malaysia Fund, Inc., a registered mutual fund, for sub- advisory services that AMC allegedly did not provide.
The Malaysia Fund, Inc. is a closed-end fund that invests in Malaysian companies. Its principal investment adviser is Morgan Stanley Investment Management, Inc. (MSIM).
According to the SEC Enforcement Division’s Asset Management Unit, AMC misrepresented its services during the fund’s annual advisory agreement review process for the past ten years. The SEC had previously pursued a similar action against MSIM. AMC’s advisory fees were approved each year from 1996 to 2007 as required under Section 15(c) of the Investment Company Act of 1940.
A registered mutual fund’s board of directors is required to evaluate the fund’s advisory agreements each year. As part of this process, investment advisers must provide the board with information reasonably necessary to make that evaluation.
AMC submitted a report to the Malaysia Fund’s board each year that claimed that AMC was providing specific advice, research, and assistance to MSIM for the benefit of the fund. In reality, AMC’s services were limited to providing two monthly reports based on publicly available information that MSIM did not request or use.
AMC, a unit of one of Malaysia’s largest banking groups, consented to a judgment that bars it from violating these provisions in the future, and has agreed to pay $1.6 million to settle the SEC’s charges, without admitting or denying the allegations. Both the Securities Commission of Malaysia and the Monetary Authority of Singapore assisted the SEC with its prosecution of the case.
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