Compliance July 7, 2010

Outsourcing Firm Accused of Diverting Money from ERISA Plans

Federal officials are investigating Franklin, Tennessee-based Sommet Group for allegations of stealing and embezzling money intended for employee benefit plans.
Reported by

A search warrant requested by the Internal Revenue Service states that Sommet, principally through its managing partner L. Brian Whitfield, led clients to believe it would pay payroll obligations, health insurance claims, and 401(k) contributions while knowing the funds were comingled into a single general account and would not be paid properly.  According to the warrant, Whitfield routinely engaged in financial transactions with the clients’ money.  

Although Whitfield knew that Sommet no longer had the ability to cover health care and retirement plans, he continued to solicit funds for that purpose. In doing so, Whitfield and others violated their fiduciary duties under the Employee Retirement Income Security Act (ERISA), the officials allege.  

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The warrant mentions problems with Sommet’s third-party administrator for health insurance plans. In November of last year, Health First Solutions indicated that their relationship with Sommet became strained because Sommet was regularly failing to provide funds for them to pay. After not correcting the problem in January, Health First terminated their contract with Sommet.  

Sommet has failed to fund insurance claims in the amount of $2.1 million.   

The warrant can be viewed here.
Products July 6, 2010

FundReveal Helps Investors Pick Mutual Funds Likely to Succeed

 

Investment Risk Management Systems Inc. has released a new Web-based tool that uses risk, return and persistence ratings to identify funds with low risk and high returns.

Reported by
 

According to a press release, FundReveal uses a patent-pending, proprietary methodology to identify mutual funds most likely to outperform the market in the future. The program was designed for individual investors, financial advisers and asset managers, to help lower the risk of loss in their portfolios while potentially increasing returns by identifying funds whose managers demonstrate superior investment decision-making capability. 

The tool analyzes individual funds in the context of the entire U.S. funds universe and combines the proprietary persistence rating with each fund’s risk-return behavior over time. This approach gives investors a rational, fact-based means of gauging future performance potential, the company said.

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The proprietary Persistence Rating captures the tendency for a fund to regularly deliver higher returns and lower risk than indices such as the S&P 500; the Fund Universe Comparison Graph positions selected funds in the context of risk-return performance for all U.S. funds and the S&P 500 in a visual form that is easy to understand; and the Summary Table gives vital statistics on funds, while other tables and graphs show Persistence Ratings and risk-return behavior of funds over time.   

Back testing conducted by IRMS demonstrates that a mutual fund portfolio constructed using FundReveal beat the S&P 500 by a significant margin in spite of lower risk.  The example portfolio achieved a total gain of 50% over five years from 2005 to 2009, while the S&P 500 lost 5%. 

In conjunction with the launch of FundReveal, IRMS has launched the Mutual Fund Performance Forum, a blog dedicated to encouraging clearer measurement standards for mutual funds.  The Forum offers investors, institutions and researchers a platform to explore mutual fund metrics in the pursuit of more transparent, accurate and predictive portfolio strategies.

Investors, advisers and asset managers can try FundReveal for free for up to 2,000 mutual funds, or pay $250 for a one-year subscription that includes Web-based summary reports for all mutual funds. To try FundReveal, visit www.FundReveal.com.

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