If you value your privacy, be careful investing in small funds.

That’s the lesson learned from the recent discovery by the Wall Street Journal that several mutual fund companies, including Los Angeles-based CNI Charter Funds (a unit of City National Corp.), inadvertently posted customers’ account numbers and addresses on the Internet.

Mutual fund companies say they have little choice in the matter, as the Securities and Exchange Commission requires them to disclose the name, address and percent holding for any customer owning more than 5 percent of a class of mutual fund.

While the SEC said it does not require that individual account numbers be disclosed, the agency maintains that ownership names must be made available to prospective investors.

“Securities laws state that investors have a right to know if there’s a shareowner that can have a disproportionate influence on that security,” said John Heine, a spokesman for the SEC. “It can come into play when one person liquidates his or her holdings, and it could substantially affect the share price.”

But once information is filed with the SEC, it becomes public, as dozens of shareholders discovered last week. This has spurred some quick damage-control by banks and mutual funds.

“The very small number of clients whose account numbers were inadvertently disclosed in an SEC-required filing have been notified and are being issued new account numbers,” said Cary Walker, spokesman for CNI Charter Funds. “No client accounts have been compromised.”

The 5 percent rule has been in place since 1978, and was originally intended to apply to company stock, where a large shareholder could be in a position to impact the share price for everyone else. But in today’s world of investment vehicles, the rule goes well beyond stock shares. Sources familiar with the SEC say that the commission is considering revising the rule during this year’s review of disclosure rules. But for now, it stands.

The disclosure rule affects smaller mutual funds more than larger ones.

The CNI Corporate Bond Fund Class A, for example, only has $1.7 million in total net assets, according to the company’s most recent prospectus posted on its Web site. So a shareholder like Chino-based Chino Glass & Glazing, with an investment of $128,000, managed to account for 7.5 percent of the fund triggering a mandatory SEC filing and inclusion in the supplementary information to the funds’ prospectus. The information is available on CNI Charter Funds’ Web site. The owners of Chino Glass did not return calls.

Institutions usually register investments in “street name,” which means a brokerage firm will buy the shares in its name on behalf of an investor. But individuals who choose to bypass brokerage account fees and buy shares directly from a mutual fund risk having their names disclosed.

Magic number


Even large mutual fund companies find themselves disclosing the names of their wealthiest accountholders. American Funds, owned by Los Angeles-based Capital Group Cos., manages more than 30 mutual funds with $300 billion in assets. Though most large shareholders are institutions, occasionally an individual investor may hold more than 5 percent of a fund.

American Funds spokesman Chuck Freadhoff said the company has to comply with SEC regulations and list any shareholder whose holding exceeds the magic number. “Not complying is not an option,” he said.

If the shareholder is an individual investor, Freadhoff said the fund only lists the state the investor lives in, not the street address. (If it’s a business or a pension fund, then American Funds lists the street address.)

“We work strictly through financial advisors, and we work very hard to make sure financial advisors are aware of all the rules that will impact their clients,” Freadhoff added.

But even financial managers find the disclosures alarming.

“I’m surprised that mutual funds give that sort of disclosure,” said Hal Harley, managing director of Deutsche Bank Private Wealth Management Group in Los Angeles. Harley’s group manages high net worth individuals where privacy is “absolutely paramount.”

Neither CNI Charter Funds nor American Funds could say whether individual investors were informed of their inclusion in the SEC filings.

Some wonder whether the 5 percent rule should even apply to a security like a mutual fund. Classes of shares often serve simply to separate different fee structures within the fund. Some investors prefer to pay mutual fund fees when they purchase shares, while others like to defer fees until they redeem shares.

Different classes in the same fund hold the same investments, so there is a question as to whether 5 percent of a particular class could really impact the overall value of a fund’s shares. The SEC is reportedly looking into all of these issues, but Heine could not confirm if any changes were imminent.

Dropped Signal

Shares of Tetra Tech Inc. fell more than 20 percent last week after the Pasadena-based environmental engineering firm declared defeat in its foray into the wireless communications market.

The company said it was “strategically downsizing” its wireless business discontinuing it in other words and would write off $50 million of its value. It also said it was dropping its major wireless customer in California, widely believed to be Nextel Communications Inc.

Company officials did not return calls.

The wireless communications division had been struggling for more than a year, but the announcement caught Wall Street a little off guard.

“It certainly wasn’t expected, otherwise the stock wouldn’t have reacted the way it did,” said John B. Rogers, analyst with D.A. Davidson & Co. of Portland. “But what was more surprising was the magnitude of the losses,” he said.

Tetra Tech does mostly environmental and government consulting and engineering. It expanded into the telecommunications market in the late 1990s as an engineering and logistics specialist, designing and placing antenna towers for telecom companies.

But the industry’s collapse was steep in the early 2000s, and companies like Tetra Tech suffered because its wireless business depended upon local contracts from large telecom companies.

Spending in the area faltered and companies chose to work with nationwide telecom experts, of which there are many.

“The fact is, there are a lot of much bigger companies that do the same thing,” said John Quealy, equity analyst at Adams Harkness. “The communications was a bit of a specialty business for them.”