First Eagle Investment Management has reached an agreement with the Securities and Exchange Commission’s Enforcement Division to settle an investigation into the firm’s payments to sub-transfer agents and other intermediaries. The agreement, which is subject to approval by the agency’s commissioners, could be the first to result from the SEC’s industry-wide distribution-in-guise sweep. Mutual fund directors and their counsel are watching closely, as the SEC could provide clues in the settlement language about its definition of “distribution,” how it believes payments to intermediaries should be made, and whether boards are being targeted in the years-long initiative.

First Eagle disclosed the settlement in a Sept. 4 proxy statement about its change in ownership; private equity firms Blackstone Group and Corsair Capital are acquiring a majority stake in First Eagle in a deal that is expected to close in the fourth quarter. No details of the settlement agreement were disclosed, and it is unclear when the SEC commissioners will consider it. SEC spokeswoman Judith Burns declined to comment, as did First Eagle spokesman Bob Rendine and Candace Beinecke, independent chair of First Eagle’s fund board.

The SEC launched its distribution-in-guise sweep in 2013 to examine how mutual fund firms use sub-transfer agent fees and other administrative service payments to compensate intermediaries that market and sell fund shares. The SEC has said it is concerned that certain payments designated for client servicing are, in fact, for distribution. Fund assets cannot be used for distribution except under board-approved 12b-1 plans. Fund boards, therefore, are potentially in the crosshairs of examiners, and the fear is that directors could be held liable if the SEC determines monies were used improperly. The regulator has provided little guidance on how fund boards and firms should handle the issue, apart from the so-called fund supermarket letter, penned in 1998.

Because of the lack of clarity on the issue and the SEC’s focus on it, directors are worried about being sued or having their fiduciary oversight questioned after the fact. “There is speculation about whether the settlement would point to the SEC’s views about what boards should be doing in this space,” Paulita Pike, partner at Ropes & Gray in Chicago, told Fund Board Views. Another industry insider said: “Everyone is trying to figure out if answers are forthcoming or if there will be any clues provided by the settlement.”

One individual familiar with the case told FBV the settlement is likely to be considered by the Commission this month. There is no guarantee the settlement will be accepted; if it’s kicked back to the staff for revisions or rejected outright, it could be months before it’s considered for approval again and any details are released.