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SEC Sues Fund Adviser for Charging Fees for Services not Provided

The SEC sued AMMB Consultant Sendirian Berhad (AMC), a Malaysian investment adviser, for allegedly charging a U.S. registered fund for advisory services that it did not provide.  AMC served as a sub-adviser to the Malaysia Fund, Inc. (the Fund), a closed-end fund that invests in Malaysian companies.  The Fund’s principal investment adviser was Morgan Stanley Investment Management, Inc.  The Fund was AMC’s only client.

According to the complaint, between 1996 and 2007, AMC misrepresented to the Fund’s board of directors the services it provided.   AMC’s reports falsely claimed that AMC was providing specific advice, research, and assistance to Morgan Stanley for the benefit of the fund.  Based on this misrepresentation, the board renewed AMC’s contract and approved payment for their fees.  AMC charged the Fund more than $1.8 million in investment advisory fees for advisory services AMC did not provide.  In reality, AMC’s services were limited to providing two monthly reports based on publicly available information that Morgan Stanley did not request or use.

The SEC alleged that AMC breached its fiduciary duty with respect to compensation under the Investment Company Act of 1940.  Moreover, AMC failed to adopt and implement adequate policies, procedures, and controls over its advisory business, contrary to what AMC stated in certification provided to the fund’s board of directors.   In February 2008, AMC’s advisory agreement with the fund was terminated.  Without admitting or denying the allegations, AMC agreed to pay $1.6 million to settle the SEC’s charges.

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