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BISYS announces 'corrective action' following SEC investigation

BISYS Group this week issued an update on the ongoing SEC investigations into its mutual fund services business.

The company stated that the SEC's investigation relates to the structure and accounting for certain arrangements pursuant to which the company agreed with the advisers of certain US mutual funds to use a portion of the fees paid to the company by the mutual fund to pay for, among other things, expenses relating to the marketing and distribution of the fund shares, to make payments to certain advisers, and to pay for certain other expenses.

BISYS has identified to the SEC a number of such arrangements, all of which were entered into prior to December 2003 and have since been terminated or are in the process of being terminated. The company says it is continuing to cooperate in the SEC's investigation, including by providing information and documents and making employees available for interviews and/or testimony.

BISYS has retained the law firm of Wilmer Cutler Pickering Hale and Dorr LLP to perform a review of the matters being investigated by the SEC, to assist the company in responding to the information requests and subpoenas issued by the SEC, and to represent the company before the SEC.

In addition, the audit committee of BISYS's board of directors has commenced an investigation into the facts and circumstances surrounding the funds services arrangements described above, along with any additional relevant matters which may come to its attention in the course of the investigation, and has retained the law firm of Paul, Weiss, Rifkind, Wharton & Garrison LLP to assist in this investigation.

The audit committee will attempt to complete the investigation promptly. In the event the investigation is not completed prior to the 10 May 2005 due date for its 3rd quarter Form 10-Q, the company may not be in a position to file its 3rd quarter Form 10-Q by such time.

Russ Fradin, BISYS' President and CEO, said, "As have stated before, we take matters of this type very seriously. We will continue to aggressively address the issues raised by the investigations, with the dual objectives of complete cooperation with the regulatory authorities and the proactive implementation of appropriate procedures to address any issues identified."

While the reviews are continuing, the board of directors and the company's current senior management are addressing these matters in the following manner:

The company has terminated or is in the process of terminating the arrangements with mutual fund advisers described above;

• A special committee of the Board has been appointed to assess appropriate personnel actions;

• The company is implementing revised procedures regarding distribution and administration arrangements with its mutual fund clients;

• The company has commenced enhanced training programs for relevant personnel; and

• The company has kept and will continue to keep the SEC fully informed concerning the status of its internal reviews.

• The company will implement additional measures as appropriate.

In addition, as previously disclosed, the SEC is also investigating the facts and circumstances related to the restatement of the company's prior period financial results which the BISYS completed in August 2004.

The company is continuing to cooperate in the investigation, including by providing information and documents and making employees available for interviews and/or testimony. The company understands that representatives of the United States Attorney's Office for the Southern District of New York have attended interviews that have taken place. BISYS has retained the law firm of Skadden, Arps, Slate, Meagher & FIom LLP to assist in responding to the information requests and subpoenas issued by the SEC and to represent the company in this matter.

At this time,  BISYS states it cannot predict the results of the SEC investigations. If the SEC determines that the Company, its current or former employees, officers or directors have violated the federal securities laws or the SEC's rules and regulations, the company could be subject to SEC enforcement actions, including potential fines and penalties, which could have a material adverse effect on the  results of operations or financial condition. A significant portion of the increase in the Company's general and administrative expenses over the nine months ended March 31, 2005, is attributable to fees and expenses associated with cooperating with these investigations. BISYS expects these increased expenditures to continue as the SEC's investigations proceed.

Background notes: The BISYS Group provides outsourcing solutions to investment firms, insurance companies, and banks. Its Investment Services group provides administration and distribution services for mutual funds, hedge funds, private equity funds, retirement plans and other investment products. Headquartered in New York, BISYS generates more than USD 1 billion in annual revenues worldwide.

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