Administration December 9, 2005

Morningstar Target of SEC Probe

September 24, 2004 (PLANSPONSOR.com) - Morningstar Inc is in talks with federal securities regulators to settle allegations the company didn't correct published mutual fund data quickly enough.
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The Securities and Exchange Commission (SEC) formally notified the Chicago-based investment research firm it may have violated securities rules, the Wall Street Journal reported. Morningstar founder and chairman Joseph Mansueto told the Journal the two sides are discussing a settlement of the matter.

While the SEC doesn’t have explicit authority over publishers of financial information, regulators have told Morningstar that the company could be the target of civil charges for deceiving investors if it was found to be reckless in its handling of data, Mansueto told the Journal.

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The probe raises questions about the systems Morningstar has in place to ensure the accuracy of its core business of tracking and rating about 15,700 US mutual funds and comes at an awkward time for Morningstar, which registered with the SEC for an initial public offering of its own shares in May.

The spark for the investigation was incorrect data Morningstar published earlier this year for the $20-million Rock Canyon Top Flight stock fund, Mansueto said. The error apparently stemmed from some confusing communications about the impact of a 2003 capital-gains distribution on the fund’s share price and made the fund’s performance appear far better than it was.

For about a month beginning February 27, Morningstar published incorrect returns on its Web site and ranked the fund the top performer in its category. A representative of the fund told Morningstar March 12 that the data were wrong, but Morningstar didn’t fix the problem until March 25, according to Mansueto and Jonathan Ferrell, manager of the Top Flight Fund. The SEC, Mansueto said, has questioned the delay in fixing the information and whether Morningstar took sufficient steps to correct the data.

Ferrell said he was contacted by the SEC in late March, before Morningstar had corrected the information. In a letter to the SEC about the events, he said that even after Morningstar officials acknowledged that the returns it had posted for the fund were wrong, the problem went uncorrected for another week and several subsequent calls to Morningstar weren’t returned. Ferrell added that no investors put money in the fund during the period in which Morningstar posted the inaccurate returns.

Mansueto told the Journal that the SEC contacted Morningstar in April with a request for information about returns on the Top Flight fund. But it wasn’t clear that Morningstar was the subject of the investigation until after the firm had filed its registration statement for its IPO on May 6, he said.

Although Morningstar’s analysts have long criticized individual funds for poor performance and fees and from time to time spoken out on industrywide issues, the firm raised eyebrows by recommending investors sell funds run by companies caught up in the share trading scandal that emerged a year ago.

Recently, Morningstar was critical of ING in a  statement posted on the Morningstar Web site for not being more forthcoming with details of its findings over possible trading violations and recommended investors delay investing in ING funds (SeeING Discloses Trading Practices Problems ).

Reader Responses December 8, 2005

SURVEY SAYS: Will Your Boss Get a Present?

December 8, 2005 (PLANSPONSOR.com) - As the holidays approach, many of us will be exchanging gifts with friends and co-workers. This week, we asked readers if they would be giving their BOSS a gift.
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Believe it or not, nearly half ( 44.29% ) said they were – though the motivations for doing so were mixed… and generally, it was a “group” endeavor.  “Yes, all of the managers and supervisors who report to my boss chip in and get him a gift,” noted one.   “Saves the time and trouble of trying to get an individual gift.”  Another said, “It will be a group effort/presentation.   As with any team, we will all either come up smelling like roses, or go down together!” “A) Yes…. And I hate it!” said another.  “My boss always gets me a present, which is very nice, but I feel compelled to return the nicety, which just adds to the stress of holiday shopping and not knowing what to get people!”  Another said succinctly, “Yes.   Don’t dare not to.”

“I have the rare good fortune of having a great job with a great boss in a fabulous office environment.   He deserves a little reward for bringing me in, well, besides his good fortune to have me working for him!” noted another.  “Yes, but it’s because she’s one of my best friends, not because she’s my boss,” said another.  

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The next most common response ( 23% ) was “other” – and while there was variety here, mostly it fell into one of two camps: the adoption of some kind of gift exchange within the department (that included the boss as a participant, and exchanges that allowed for the “theft” of gifts as part of the distribution were popular), or the decision to devote those resources to helping others in need.  “The management team of our office has indicated that, rather than have everyone go in on getting them gifts as we had in years past, we put the money towards the family that we adopted,” noted one, who went on to say what a great idea it was to “shop for a family who needs everyday stuff instead of finding something for someone who can buy pretty much anything then want.”  Another noted, “Last year some of us informally decided NOT to exchange gifts and instead donate the amount we normally would spend on office gifts to a local charity.   Our department was already collecting donations at our holiday lunch, so this made the donation to the charity much larger.   It worked out great for everyone — no more searching for affordable (i.e., cheap) gifts for people who don’t really need little token gifts, and the charity received a much larger donation.   The bosses loved it, too!”

Other was also a category for some other responses, including the reader who noted, “The question assumes everyone has only ONE BOSS, while in this complicated day and age in which we live, that, unfortunately, isn’t the case for 100% of us. Having more than one (three actually, in a complex, matrix-reporting structure which still defies any explanation!!!) boss is complicated enough, given that they are in different locations, and all of which are constantly battling for a greater % of my time!! So, sorry, no gifts for them!! (I don’t think they’d be happy with a third of a gift each, anyway!!!!!!!!!!!)”   Echoing those concerns was the reader who said, “Yes – although your question has me thinking about the arrangement.   I am an administrative assistant and therefore the only employee of two bosses.   Last year I gave them both gifts, but they went together and I only received one.   Maybe I should make them share this year….”

Another 22% of the vote was split almost evenly between two other categories – no, other than the privilege of working for him/her; and no, and if you knew him/her you’d understand.  “His gift is that I am still here, despite him,” explained one, while another said, “S/he has no idea how lucky they are I’m still here. They are living on borrowed time.”  Or, as one reader noted, “d) No, other than the privilege of having me working for her because (e) if you knew my boss, you’d understand.   Sadly, (g) my co-workers and I are concerned that a gift would be interpreted as positive reinforcement of her management style.”

The remaining 11% were split between a simple “No, we don’t exchange gifts,” “No, wouldn’t want to be seen as currying favor,” and “Maybe – depending on if they’re naughty/nice.”   In the latter category was a reader who said, “He is a great guy.   I’d buy him a BMW if he didn’t already have one.   He is both naughty and nice….a genuine problem for H/R.   Maybe I could take him out for a beer and we could both be real people for a few hours.”

There were also comments that, while not really “reflective” of any particular response category, nonetheless provided some levity:

“Having recently applied for the job my new boss now has, it’s sufficient to give the new boss my full support.   :-)”

“I will be giving some small gift to my co-workers…something like a gift set of coffees, teas, and hot chocolate.   The boss, however, will get a lump of coal.”

“Now that you mention it, no, we don’t give the boss a gift. Interestingly enough, however, we do give the boss’s boss a gift, and our boss takes us out for lunch and a movie.”

“We have a new Corporate Code of Conduct that prohibits such gifts. Whew!”

“Yes, everyone in our department is contributing whatever they want to the purchase of a 6-foot tiki for our boss’s back yard.   We will be forever beholden to our co-worker who came up with the idea for probably one of the most unusual gifts he’ll ever receive.   We can hardly wait to see the look on his face when he walks into his office and sees it!”

“I came to my new company this past July and made the inquiry regarding Christmas gifts. It seems I have entered into a group where everyone buys gifts for everyone. Not a big deal except my wife met my assistant this past weekend at our holiday party. I had suggested buying this person a sweater because she always seemed to be cold in the office. Once my wife met this person, I got in trouble for not informing my wife that the assistant is “so hot” (wife’s words), and now we are looking for other gift ideas that aren’t ‘so personal’!”

And – from a totally different reader – the acknowledgement that, “I will also be giving many gifts along with a card and flowers to my BOSS (i.e., wife).”

But this week’s Editor’s Choice goes to the reader who replied, “I haven’t yet bought any gifts, but I have scheduled him in for three strategy sessions with three different ghosts.”

Thanks to everyone who participated in our survey!

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