SEC joins Probe, Asks Funds for Documents
By Thor Valdmanis, USA TODAY
NEW YORK — Anxious not to be left behind, the Securities and Exchange Commission moved quickly Thursday to join the growing investigation into a mutual fund trading scandal. SEC enforcement chief Stephen Cutler said the commission was requesting documents from dozens of mutual fund companies following allegations by New York Attorney General Eliot Spitzer that the industry is rigged against small investors.
Meanwhile, Spitzer continues to issue subpoenas to major mutual funds and their larger clients, such as hedge funds. The loosely regulated investment pools for wealthy investors are at the center of the trading probe.
People close to the situation say Millennium Partners, a large hedge fund run by prominent investor Israel Englander, is emerging as a primary focus. Manhattan-based Millennium could not be reached for comment Thursday night.
Among large mutual funds, Invesco Funds Group and Putnam Investments, a unit of Marsh & McLennan, confirmed they had been contacted by Spitzer's office.
Rivals such as Fidelity, American Funds, Franklin Templeton Investments, Vanguard Group, Oppenheimer Funds, American Century Investments, T. Rowe Price, Dreyfus and asset management arms run by Morgan Stanley and Merrill Lynch are also expected to be subpoenaed or asked for information in coming days.
"We are putting out information requests to dozens of mutual funds about their timing with transactions, and we intend to follow up on that industry in a very aggressive way," the SEC's Cutler told CNBC.
As Cutler met with Spitzer in Manhattan early Thursday to coordinate the mutual fund investigation, Massachusetts confirmed it was investigating whether the Boston office of Prudential Securities might have conducted illegal mutual fund trading.
The SEC has been reviewing the mutual and hedge fund industries. But the effort took on greater urgency after Spitzer charged Wednesday that major mutual fund companies pump up profit using trading schemes that cost small investors "billions of dollars."
Spitzer said the mutual fund arms of Bank of America and Bank One and the mutual fund providers Strong Financial and Janus Capital allowed a New Jersey-based hedge fund to profit at the expense of investors in their mutual funds. Spitzer said Canary Capital Partners gave the four mutual fund companies banking business in exchange for the ability to engage in market exploitation and illegal after-hours trading. Canary agreed to pay $40 million to settle the charges and is helping in the investigation. Canary did not admit wrongdoing.