FUND MANAGER FAILED TO PROPERLY SCREEN FOR SRI INVESTMENTS
The SEC fined and issued a cease and desist order against a mutual fund manager that failed to follow socially responsible investing guidelines in violation of the fund’s disclosure documents and the manager’s own policies and procedures. The manager failed to obtain approval from the department within the firm charged with screening securities before purchase. Additionally, the firm failed to continuously monitor investments after purchase, even though disclosures included undertakings to continuously monitor the holdings. In certain cases, non-compliant securities would not have passed initial screens. In other cases, the nature of the issuers changed over time but would have been screened had the manager followed its own procedures.
OUR TAKE: Firms should monitor undertakings made in disclosure documents to ensure that they do what they have promised to investors. Statements made in disclosure documents are not mere marketing puffery. A firm will have securities law liability if it fails to meet its disclosed obligations.