Undercover: Regulator Wants Agents to Check Fund Sales

Article excerpt

Undercover government agents posing as mutual fund shoppers would look for abusive sales practices under a plan proposed by the Clinton administration's senior bank regulator.

Comptroller of the Currency Eugene A. Ludwig, whose Treasury Department agency regulates nationally chartered banks, called for a program of using agents known as "testers" to determine whether banks and securities firms were abiding by federal rules.

The proposal would help ensure that all mutual fund customers "receive the information they need to make informed decisions about investing," Ludwig said in a letter sent earlier this week to fellow regulators.

Ludwig cited surveys by the Securities and Exchange Commission and consumer groups showing many mutual fund customers mistakenly believe their investments are insured by the Federal Deposit Insurance Corp.

In the past few years, many banks have moved aggressively into selling mutual funds, and consumer advocates have raised concerns that some customers, particularly the elderly, don't understand the difference between a mutual fund and a bank deposit.

Mutual funds pool money from investors to buy stocks, bonds, options and other securities, but investors can lose their money if market values drop. A bank or savings and loan deposit, on the other hand, is guaranteed up to $100,000 per account.

In February, Ludwig's agency and other bank regulators issued guidelines aimed at ensuring that customers are informed of the risks of mutual funds. …


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