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March 1, 2001

SEC Keeps Up Pressure On Soft Dollar Violators

By Sanford Wexler

The Securities and Exchange Commission is likely to issue a set of recommendations in the coming months on what constitutes acceptable research in soft dollar transactions, according to industry sources.

The recommendations come in the wake of the agency's extensive 1998 report on soft dollar practices, which cautioned investment advisers to be more thorough in disclosing their arrangements.

However, Lee Pickard, an expert on soft dollar practices for the law firm of Pickard & Djinis in Washington, D.C. estimated that the recommendations could be several months in coming. "It won't be soon," he said.

Revised Guidelines

Late last year, the SEC issued guidelines on soft dollar disclosure arrangements but did not adapt them, deciding instead to postpone implementation until it releases revised guidelines this year. John Heine, a spokesman for the agency, said the SEC is still studying the recommendations covered in the 1998 report.

Experts warn, however, that investment advisers should be ready to answer SEC inspectors questions on soft dollars.

The SEC can come knocking at short notice. Last August, for instance, the SEC said that Dawson-Samburg, now known as Dawson-Giammalva, an investment adviser in Southport, Conn., used soft dollar credits to improperly pay for a variety of expenses.

The SEC noted that as Dawson's assets under management increased so did its soft dollar arrangements. From 1990 to 1996, those assets grew from approximately $350 million to $2.2 billion. According to the SEC, the firm failed to properly disclose its use of soft dollars as its growth accelerated. The agency alleged that the firm improperly used soft dollar credits to pay for $174,000 in ordinary business travel expenses as well as $35,700 in personal travel expenses.

Compliance Policies

Dawson settled with the SEC and agreed to pay a penalty of $100,000. The firm agreed to retain an independent consultant to conduct a review of the firm's compliance policies.

Gerald Lins, general counsel of ING Furman Selz Asset Management in New York, said firms should "put in adequate resources into training and monitoring soft dollar usage."