Friday, January 7, 2011

SEC Press Release: Municipal Bond Fund

SEC Charges Former Portfolio Managers With Defrauding Utah Municipal Bond Fund

The U.S. Securities and Exchange Commission (SEC) issued a press release today announcing that it had
charged two former portfolio managers with defrauding a mutual fund that invests primarily in municipal bonds issued by the State of Utah and its county and local authorities.
Young and Albright – co-portfolio managers of the Tax Free Fund for Utah at the time – charged municipal bond issuers over $500,000 in “credit monitoring fees”, which were undisclosed and which they took for themselves. The press release also provides the SEC Orders against Young and Albright.

Municipal bonds are bonds issued by government entities at the city, county and state levels. There are certain risks in investing in municipal bonds. Firstly, the municipal bonds issuers can default, leading to the loss of some if not all interest and principal to the investor. This is called default risk. Secondly, municipal bonds can be insured against default by a bond insurer, although the investor would be exposed to an ‘additional’ credit risk of the bond insurer itself. Thirdly, municipal bonds are subject to interest rate risks. Retail investors should also be aware of the extra costs of purchasing municipal bonds, such as fees and mark-ups and be sure that they are not excessive relative to the market.

SLCG has written several papers relating to municipal bonds:
Investors may find in our dedicated website many other interesting papers and notes.

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