A Compilation of Non-Enforcement Actions – August 2010

Non-Enforcement Matters

SEC Proposes Elimination of Rule 12b-1

The SEC proposed regulations that will replace Rule 12b-1 with new regulations "designed to enhance clarity, fairness and competition when investors buy mutual funds," according to SEC Chairwoman Mary Schapiro.

Rule 12b-1, which came into effect in the late 1970s, was designed to assist the struggling investment fund industry to finance marketing expenses. Three decades later, the investment fund industry is no longer struggling, and such fees now represent billions of dollars passed on to investors annually. According to the SEC, mutual fund investors in 2009 paid about $9.5 billion in 12b-1 fees.

In its current form, Rule 12b-1 allows mutual funds to pay broker-dealers out of the fund's assets without providing investors in the fund details about such fee amounts and why they are being paid. Because of the sheer amount of fees being paid out by the funds under the cloak of Rule 12b-1, the SEC