First Eagle Charged by SEC for Improper Distribution Payments

The Securities and Exchange Commission (SEC) charged First Eagle with improperly using mutual fund shareholder’s assets to pay two brokerage firms to market and distribute its funds. First Eagle Investment Management and FEF Distributors will be charged $40 million, which will be used to pay back fund shareholders. The SEC is continuing to investigate asset management firms for these transgressions. They may also investigate broker-dealers and whether funds are illegally being funneled to broker-dealers while being passed off as accounting and other services. According to the SEC, First Eagle “unlawfully caused the First Eagle Funds to pay nearly $25 million for distribution-related services, rather than making the payments out of the firms’ own assets. Mutual fund advisers have a fiduciary duty to manage the conflict of interest associated with fund distribution, namely whether to use their own assets or to recommend to their fund’s board to use the fund’s assets to distribute shares. First Eagle breached that fiduciary duty by using the funds’ assets rather than its own money to pay for distribution and failed to provide accurate information to the funds’ boards.” First Eagle told the boards the fees they were paying were for accounting services, not for distribution. These took place from January 2008 until March 2014.

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