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News > Companies
Mutual fund probes spread
Mass. regulator eyes Prudential's funds; SEC staff reportedly weigh probe of hedge fund practices.
September 4, 2003: 3:18 PM EDT

NEW YORK (CNN/Money) - Problems spread for the mutual fund industry Thursday, as more probes of the industry's trading practices were disclosed.

A spokesman for Massachusetts' top securities regulator said he is probing mutual fund trading of the Boston office of Prudential Securities.

In addition sources told Reuters that the Securities and Exchange Commission staff is considering ordering hedge funds to undergo inspections by examiners who could review their closely-guarded trading strategies as part of their examination of mutual fund conduct.

Meanwhile Standard & Poor's said it is monitoring a similar mutual funds probe by the New York Attorney General Eliot Spitzer. Spitzer filed the complaints Wednesday charging four of the nation's largest mutual funds -- Bank One (ONE: Research, Estimates), Janus (JNS: Research, Estimates), Strong Financial and Bank of America (BAC: Research, Estimates) Nations Funds -- illegally gave a hedge fund special privileges to make illegal trades, in return for fees. S&P said it is not yet clear if the firms' credit ratings would be hurt by the probe, even if they are ultimately forced to pay a civil penalty.

"Any potential settlement or litigation charges would be analyzed within the context of a firm's ongoing franchise and earnings power, and would need to be of a material size for there to be a ratings impact," said S&P's statement.

Spitzer also announced a $40 million settlement on Wednesday with Canary Capital Partners, a hedge fund based in Secaucus, N.J. Spitzer said Canary and its managing principal, Edward Stern, agreed to pay $30 million in restitution and a $10 million penalty to settle the charges against it, which included allegations that it had performed illegal trades of mutual fund shares. The firm and Stern neither admitted nor denied wrongdoing as part of the settlement.

The Boston Globe first reported in its Thursday edition that Prudential Securities is at the heart of an investigation by the state's top securities regulator, Bill Galvin.

A spokesman for Galvin subsequently confirmed to Reuters that the secretary was investigating Prudential, but did not say whether the probe also targets other companies.

A spokesman for Prudential declined to comment.

Shares of insurer Prudential (PRU: down $0.94 to $36.51, Research, Estimates), parent of Prudential Securities were lower in trading Thursday, as were shares of Janus (JNS: down $1.12 to $15.76, Research, Estimates), Bank One (ONE: down $0.64 to $39.33, Research, Estimates) and Bank of America (BAC: down $1.61 to $76.39, Research, Estimates)  Top of page

-- Reuters contributed to this story.

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