The Derivative Project

Geithner Steps Up Action on Money Fund Reform: Will the SEC Investor Advisory Committee Take Emergency Action to Protect the Retail Investor?

Geithner Steps Up Action on Money Fund Reform: Will the SEC Investor Advisory Committee Take Emergency Action to Protect the Retail Investor?

The Derivative Project submitted a request to SEC Chair Shapiro and a request for Discussion today to the Investor Advisory Committee to consider the misrepresentation by the money market fund industry to retirement investors.

  • Money market funds now present significant systemic risk, as presented by the Federal Reserve Bank of New York in its April 2012 Shadow Banking Report.
  • Retirement investors can currently earn higher returns with less risk in other cash management options, such as FDIC insured Bank CD’s or FDIC sweep accounts.
Here is a link to The Derivative Project’s September 26, 2012 Press Release, Requests SEC to Move Retirement Cash to FDIC Sweep Accounts and a link to the SEC proposal at the comment page for today’s SEC Investor Advisory Committee Meeting.
In response to The Derivative Project press release, CNN was the only news media entity that carried the concept that investors are now foolish to invest in money market funds over FDIC insured bank CD’s.  Here is CNN’s very brief story on the low returns and risks in money funds for individual investors.
The American Banker reported yesterday that Secretary Geithner is now calling for Faster Progress on Money Market Reform.
“Paul Schott Stevens, president of the Investment Company Institute, said funds would continue to oppose any regulation.
“The money-market fund proposals Secretary Geithner presents to the FSOC already have been the subject of extensive analysis and commentary,” Schott said in a statement. “These proposals have elicited strong opposition for their adverse impacts on investors, issuers and the economy.”
It is long over due for the SEC to step up and defend the retail investor.  The Fund industry is breaching securities’ laws by saying money market funds are in the best interests of investors. That statement is fraudulent misrepresentation.  As regulated by the SEC, mutual funds are prohibited from false advertising and every ERISA fund has the duty to act in the best interest of the retirement investor, not the Fund company.
Further, the Fund industry is taking a stances opposite of the Federal Reserve Chair, Ben Bernanke, who stated recently,
“Important steps were taken by the SEC to strengthen the money market funds, and I recognize those were very useful steps, but the work that the SEC has done, the consultations with the industry, with the public, the economists who performed analysis of this industry suggests that more needs to be done, and I’m very supportive of the efforts that the SEC is undertaking,” said Federal Reserve Chairman Ben Bernanke at the council’s meeting.”
Barron’s reported earlier this morning that Secretary Geither reopened the money market reform discussion.
SEC Investor Advisory Committee Members, Dodd Frank financial reform created your committee for a reason.  It is time to step forward and take action to defend the legal rights of retail investors against Wall Street.  The 100-year flood, a collapse of a systemically important institution, happens without warning.  SEC registered investment advisers, by law, must act in the best interest of their client, which as currently structured, money market funds are solely in the best interest of Wall Street, not the retail investor.
We hope you will take emergency steps this afternoon to protect retail investors.