| Subject: New York attorney general vows criminal charges against fund firms |
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Date Posted: 20:27:41 11/21/03 Fri
New York attorney general vows criminal charges against fund firms
NEW YORK : New York attorney general Eliot Spitzer, who has launched a wave of investigations into the US mutual fund industry, warned he would bring criminal charges against more firms and seek to jail top executives.
Spitzer said many firms would be forced out of business as a result of state and federal probes of trading practices that allegedly enriched fund managers at the expense of small investors.
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"Whether they no longer exist because they are indicted, because they are forced into dissolution, or whether they are forced by regulators to remove themselves from the marketplace, there will be entities that disappear," Spitzer said.
"And the individuals at the top of those entities will face criminal sentences," he told a corporate governance conference organized by the New York Society of Security Analysts.
Putnam Investment Management and Pilgrim Baxter already have been charged with securities fraud and other firms have either ousted or sidelined top executives amid investigations by Spitzer and the federal Securities and Exchange Commission (SEC).
Regulators are examining whether executives at firms throughout the 6.9-trillion-dollar industry have engaged in market timing and late trading.
Short-term trading, or market timing, is the rapid buying and selling of mutual fund shares to profit from short-term changes in share prices, a practice regulators say violates their fiduciary duty to their clients.
In illegal late trading, certain investors are allowed to profit on information received after the market close by getting that day's price for shares bought or sold after the end of formal trading.
Spitzer has likened late trading to betting on a horse after the race has been run.
"The business has been profiting from the violations of fiduciary duties. There will be disgorgement of fees, there will be prison sentences, and there will be a new way of arriving at fees," he said.
He demanded wholesale reforms, saying the New York Stock Exchange, the mutual fund industry, regulators and legislators had allowed corrupt behavior to flourish.
"There was a sense of complacency, a sense of comfort with the status quo, that so overwhelmed people that nobody was willing to ask a hard question. Nobody was willing to challenge the way products were being delivered or paid for," Spitzer said.
"And when you would occasionally get a voice from the outside who would lob in a question about fees in the mutual funds business, they try to portray you as being an outsider who's become something of crank."
- AFP
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