Capital Research and Management, the third largest U.S. mutual fund manager, is under investigation by federal regulators over its sales practices, The New York Times reported on Tuesday.
The U.S. Securities and Exchange Commission is examining whether Los Angeles-based Capital Research, manager of the $450 billion mutual fund group American Funds, rewarded brokerages that aggressively sold its funds by directing commissions on securities trades primarily to those firms, the Times said.
Critics say this type of practice, known as directed brokerage, can represent a conflict of interest and be costly to investors because the fund firms often end up paying too much in commissions, boosting their expenses and lowering shareholder returns.
The newspaper, citing unspecified people who have been briefed on the discussions, said Capital Research has notified some people who sell its services about the investigation.
The Times said Capital Group spokesman Chuck Freadhoff declined to comment on the SEC matter other than to reiterate an earlier statement that federal and state regulators had requested information from Capital Research and that the company was cooperating with those requests.
The American Funds have been a big beneficiary of the fund trading scandals that have hurt some other fund firms over the past year.
The Times cited AMG Data Services figures showing the American Funds have enjoyed the largest inflows of investor dollars this year, taking in nearly $33 billion into its stock funds year to date through May.
Capital Research representatives were not immediately available to comment on the report to Reuters.