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SEC gets an earful from mutual fund investors

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By ROBERT TRIGAUX, Times Business Columnist

© St. Petersburg Times
published December 8, 2002


On the first day of Christmas, the SEC gave to me . . . better financial transparency.

That line will never replace the original holiday lyric. But many investors would love to start singing those new words. And they are communicating that wish by droves to the Securities and Exchange Commission.

What's high on investors' holiday shopping list? That the SEC approve a proposed rule requiring mutual funds to tell investors how they voted in corporate proxy elections. Most mutual fund companies don't want to tell. But more and more fund investors, fed up with corporate scandals and executive self-dealing, are insisting on knowing how their mutual funds vote on shareholder resolutions and other corporate proxy matters.

The SEC's deadline for comment on its proposed rule was Friday. More than 3,000 investors sent in their views. The vast majority supports disclosure.

Talk about a no-brainer. After a year of such staggering bankruptcies as Enron and WorldCom, after the relentless parade of greedy-beyond-belief executive shenanigans by the likes of Enron's Andy Fastow, Tyco's Dennis Kozlowski and Adelphia's Rigas family, keeping mutual fund investors in the dark on something so basic as proxy votes seems absurd.

To draw attention to the proposed SEC rule, the AFL-CIO on Wednesday protested in Tampa outside the West Shore Boulevard investor center of mutual fund giant Fidelity Investments, and at 18 other Fidelity centers across the country.

Tampa protesters distributed leaflets demanding that Fidelity drop its opposition to better proxy disclosure. In Chicago, AFL-CIO members demonstrated outside Fidelity's center at Madison and LaSalle streets. And in Los Angeles, members passed out leaflets in Century City by Fidelity's office on Santa Monica Boulevard.

Why the full-court press? AFL-CIO's pension funds lost $3.3-billion in the bankruptcies of Enron and WorldCom.

Fidelity's not impressed. A spokesman says Fidelity stands behind its policy of not announcing proxy votes or how it reaches voting decisions. Fidelity also seems worried that proxy disclosure would move up or down the stock prices of companies in which it has large stakes. Most mutual fund giants, including TIAA-Cref and Vanguard Funds, oppose at least some aspects of disclosing proxy votes, which can concern matters ranging from approving executive compensation and electing directors to approving mergers.

In Florida, plenty of mutual fund investors are tired of being treated like mushrooms (kept in the dark and fed manure). Many vented their frustrations in recent letters and e-mails to the SEC. Their chief beef? Investor confidence battered by corporate fraud or accounting problems will not improve while mutual funds ignore their own shareholders in proxy votes.

Not that every proxy vote by a mutual fund is anti-investor. But wouldn't it be nice to know?

"Confidence in the investment community is at an all-time low, and this rule will at least help restore that confidence," Sarasota investor Steven Potter told the SEC. "As an owner of several mutual funds, I am entitled to know how my proxy is being voted."

"Potential conflicts of interest must be exposed, or in light of the recent scandals secrecy will drive small investors out of the financial markets," Douglas and Linda Hay, who live in Venice, Fla., warned in their November e-mail to federal regulators.

"The recent wave of corporate scandals provides ample evidence that corporate America needs greater transparency, responsibility and accountability," Miami's Hubert Harriman said. "I urge the SEC to stand up for investors."

Sound a bit familiar? The protest "no taxation without representation" comes to mind. People just don't like giving their money in good faith to somebody, then being told to mind their own business.

Just ask Larry S. Dohrs of Seattle's Newground Investment Services. "The claim that disclosure of proxy voting policies and records would undermine the principle of secret ballots is simply ludicrous," he said. "It is tantamount to our elected representatives telling us that they need to keep their legislative policies and votes secret, in the interest of democracy."

The disclosure issue is big. Mutual funds represent close to 90-million Americans and represent a solid 20 percent of proxy votes at corporate shareholder meetings. Funds usually vote with a company's management on a proxy issue or sell the stock.

A few mutual fund companies see the merits of better disclosure. The California Public Employees' Retirement System, or Calpers, last month stated its support of the proposed SEC rule. Some firms, such as Pax World Funds and MMA Praxis Mutual Funds, already disclose their proxy votes.

Orlando investor Scott Rohlf sums up the value of improved disclosure. "Maybe with more oversight by the investing public, some of the corporate frauds we have witnessed lately will be reduced," he told the SEC. "Mutual funds offered to the public have a moral responsibility to reveal how they voted on proxy issues."

Makes good sense. But that's never been a guarantee of the right action in our nation's capital. Here's hoping the SEC sees the light.

-- Robert Trigaux can be reached at trigaux@sptimes.com or (727) 893-8405.

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