Skip navigation

TAKE A PERP WALK WITH ME: A SCANDALOUS SCORE CARD

It's fair to argue that the attention devoted to the market timing and late trading scandals is way out of proportion with their actual monetary impact on investors. But, for better or worse, John Q. Investor seems to have decided that the entire securities industry is out to get him. Looking at the following list of companies and executives charged with wrongdoing, it's easy to see why he's reached

It's fair to argue that the attention devoted to the market timing and late trading scandals is way out of proportion with their actual monetary impact on investors. But, for better or worse, John Q. Investor seems to have decided that the entire securities industry is out to get him. Looking at the following list of companies and executives charged with wrongdoing, it's easy to see why he's reached that conclusion.

Alliance Capital — Two senior executives, including president and chief operating officer John D. Carifa, fired for knowingly abetting market-timing activities. The firm has also asked an undisclosed number of employees to resign in connection with market timing as well. Alliance has taken a $190 million charge for restitution and litigation costs.

Bank of America — Accused by New York State Attorney General Eliot Spitzer of having the most extensive trading relationship with Canary Capital Managers, which improperly traded in B of A's Nations Funds. Bank of America has fired three bank employees, including broker Theodore Sihpol, who was also charged with larceny. The bank has taken its own $100 million charge to pay off litigation and restitution costs.

Bank One — Allegedly allowed Canary Capital to market time its funds. One Group Mutual Funds president Dave Kundert has alerted employees to “anticipate enforcement action against Bank One's mutual fund advisor” from the SEC. Executives Mark Beeson and John AbuNassar, both allegedly aware of the market timing, have been asked to resign.

Bear Stearns — Being investigated by the Justice Department for processing improper trades. Has also been sued in a U.S. Circuit Court court in connection with the Janus and Putnam Investments scandals. In November, Bear Stearns fired six private client group employees for helping hedge fund customers to improperly trade funds.

Canary Capital Managers — The match that started the forest fire. Settled with regulators in September for $40 million after Spitzer's office found late trading and market timing was an essential part of its investment strategy. Its settlement did not require the hedge fund, or managing principle Edward Stern, to admit any wrongdoing, but ultimately led to investigations into Bank of America, Janus Capital, Bank One and Strong Capital Management. Some reckon the hedge fund's name is apt — after all, the firm “sang like a canary.”

Charles Schwab — Discovered market timing in its U.S. Trust subsidiary's Excelsior Funds. Fired two “junior” employees for deleting e-mails related to the market timing, e-mails that were ultimately recovered.

Citigroup — Four brokers fired by Smith Barney for “inappropriate behavior related to market timing,” and one fired for late trading. Citigroup Asset Management is being investigated by federal regulators for errors (the company's word) in a relationship with a transfer agent services provider. The bank has set aside $16 million, plus interest, to the mutual funds specifically run by the unit. It claims certain “sweetheart” deals were not disclosed to the funds' boards.

Federated Investors — Fund firm that admitted it had accepted “after-hours” trades on “100 occasions,” but blamed it on employees who didn't understand the regulations. All three have been fired.

Fred Alger and Co. — Former vice chairman James Connelly became the fund scandal's first exec to receive jail time when he pleaded guilty to felony charges of attempting to erase e-mails he wrote authorizing certain employees of his mutual fund firm to allow market timing, specifically with hedge fund Veras Investment Partners, which has subsequently shut down. Connelly, who resigned his position, also was fined $400,000.

Invesco Funds Group — Charged with allowing favored clients — those who kept at least $25 million with the fund group — to engage in market timing in their funds. Regulators charged chief executive Raymond Cunningham with civil fraud for allowing the practice, which allegedly accounted for $900 million in timing assets. Regulators are seeking $161 million in fees and values for investors, in addition to punitive damages. Invesco has “vigorously” denied all charges.

Janus Capital — Found four instances of market-timing deals with Canary Capital, allegations that forced then-CEO Richard Garland and various other executives to resign. After it put a halt to rapid-fire trading, the fund announced that its assets declined by $314 million in September because of the end of the practice. In October, the firm had more than $2 billion in outflows.

Merrill Lynch — Three brokers fired for market timing. Incidentally, the same three brokers had been fired by UBS for market-timing offenses in January 2002. Two executives responsible for recruiting and supervising the brokers kept their jobs, but were fined a reported $250,000.

A.G. Edwards — Notoriously squeaky-clean Midwest brokerage fired two brokers in October for alleged market-timing allegations. Brokers Charles Sacoo and Joshua Boyle were canned from Edward's Boston Back Bay branch, an office that had previously drawn attention from the NASD.

Morgan Stanley — Settled with the SEC for a $50 million fine directly related to “breakpoint” violations and steering clients toward funds offered by “preferred” companies. The firm admitted no wrongdoing. Also, Massachusetts branch manager David Varela was accused by state regulators of illegally selling mutual funds. So far, Morgan Stanley has neither reported nor been accused of market-timing or late-trading.

Mutuals.com — Charged by the SEC in early December, along with two affiliated broker/dealers, with helping its customers to market time and late trade mutual funds. As of September, approximately 294 mutual fund trading companies had banned the Dallas-based investment advisor from trading in their funds, according to the SEC. In response, Mutuals.com formed two B/Ds (Connely Dowd Management and MTT Fundcorp) through which they could continue to trade the funds that had banned them. The company's CEO, Richard Sapi, president, Erin McDonald, and compliance officer Michele Leftwich are named in the SEC charges.

Pilgrim, Baxter & Associates — Sued by SEC for a deal that allowed co-founder Gary Pilgrim and his wife to set up their own hedge fund, Appalachian Trails, that market timed PBHG funds. CEO and co-founder Harold Baxter was accused of giving nonpublic information to a friend, who then market timed PBHB funds. Both men have resigned.

Prudential Securities — Five Boston-based brokers were hit with market timing fraud charges by Massachusetts regulators. The head of the group of brokers, Martin Druffner, was accused of using 62 different aliases to make his repeated mutual fund trades. Druffner's lawyers allege that not only did Prudential's top executives know about his group's market timing, but, after the WachPru merger, Wachovia's executives did as well. In court documents, Druffner claims he was told, upon meeting Wachovia higher-ups in Richmond, Va., that “there is other timing going on at Wachovia and there should be business, same old business.”

Putnam Investments — One of the earliest mutual fund scandals, Putnam's troubles surfaced when a call center worker named Peter Scannell told Massachusetts regulators of illegal trading at the huge money management firm. Civil fraud charges of market timing were quickly filed by Massachusetts regulators and the SEC, leading to the resignation of CEO Lawrence Lasser. Putnam settled with the SEC in November, without admitting wrongdoing, but still must face a determined Massachusetts court, which was reportedly infuriated that the SEC “let Putnam off easy.”

Spitzer, Eliot - New York gubernatorial candidate.

Strong Capital Management — Another Canary Capital casualty. CEO Richard Strong was forced to resign after allegations that his market timing deals grossed him more than $600,000 in profits. Criminal charges against Strong and civil charges against the firm are expected.

UBS — Two brokers fired, nine “disciplined” for market timing. Executives took pains to point out that the brokers were from the PaineWebber unit.

Piper Jaffray — Found “three instances” of its customers market timing funds. Has also been notified that it has not been providing adequate breakpoint discounts. Is cooperating with authorities and had “disciplined” — but not fired — two employees.

Raymond James — Undertaking a full audit of the last two years of mutual fund trades to find breakpoint violations to comply with regulators. “Enforcement action” is expected.

TAGS: Archive
Hide comments

Comments

  • Allowed HTML tags: <em> <strong> <blockquote> <br> <p>

Plain text

  • No HTML tags allowed.
  • Web page addresses and e-mail addresses turn into links automatically.
  • Lines and paragraphs break automatically.
Publish