SEC said MSIM violated securities laws in a fee arrangement that repeatedly charged a fund and its investors for advisory services they weren’t actually receiving from a third party.
The SEC’s investigation found that MSIM – the primary investment adviser to The Malaysia Fund – represented to investors and the fund’s board of directors that it contracted a Malaysian-based sub-adviser to provide advice, research and assistance to MSIM for the benefit of the fund, which invests in equity securities of Malaysian companies.
However SEC said the sub-adviser did not provide these purported advisory services, yet the fund’s board annually renewed the contract based on MSIM’s representations for more than a decade at a total cost of $1.845m to investors.
According to the SEC’s order, MSIM arranged The Malaysia Fund’s sub-advisory agreement with a subsidiary of AM Bank Group, one of the banking groups in Malaysia.
SEC co-chief of Enforcement Division’s Asset Management Unit Bruce Karpati MSIM failed in its duty to provide the fund’s board members with the information they needed to fulfill their significant responsibility of reviewing and approving the sub-adviser’s contract. MSIM’s failure undermined the integrity of the board’s oversight process.
