Mutual Fund Portfolio Manager Sued for Tipping Family Members
The SEC has commenced an action against a mutual fund portfolio manager alleged to have tipped a family member to sell shares of a fund the respondent managed. According to the SEC, the respondent managed two municipal bond funds in which family members had invested their life savings. As the muni market froze in the fall of 2008, the portfolio manager came into possession of material non-public information about significant redemptions and the likelihood of NAV declines. According to the SEC, the portfolio manager recommended that his family members move their assets out of the fund and into Treasuries. The SEC charges the portfolio with violations of Section 17(a) and Rule 10b-5 because he passed material non-public information while in a fiduciary position.
OUR TAKE: Although it appears the portfolio manager did not personally benefit, the SEC has consistently taken action where an insider favors one shareholder over another.