SEC Probing Mutual Funds’ Muni Pricing

Sakthi Prasad


February 18, 2011

U.S. securities regulators are probing whether some mutual funds have overstated the value of thinly traded risky municipal bonds at a time when investors were withdrawing money from muni-bond funds, the Wall Street Journal reported, citing people familiar with the matter.

The probe by the U.S. Securities and Exchange Commission is part of the regulator’s broader effort to investigate possible abuses in the municipal bond market, the Journal said.

The SEC is concerned that investors in high-yield muni-bond mutual funds could be misled about the true value of their investment, the paper said.

The SEC move was prompted by weak conditions in the muni bond market, as investors have been withdrawing their money from muni funds for several weeks, the Journal reported, citing people familiar with the matter.

A spokesman for the SEC declined to comment to the Journal. The SEC could not immediately be reached by Reuters outside regular U.S. business hours.

U.S. municipal bond funds reported $974 million of net outflows in the week ended February 16, compared with the previous week’s outflows of $1.16 billion, LipperFMI reported on Thursday.

It was the 14th consecutive week of sizable net outflows since the funds, popular with individual investors, reported $42 million of net inflows in the week ended November 10.