California Attorney General Subpoenas Mutual FundsJan 2, 2004 | www.thestreet.com
The California attorney general's office said it initiated the investigation as a new law went into effect, giving the office greater sweep to investigate violations of state securities law.
At issue is whether funds defrauded investors by failing to disclose whether brokers drew commissions for touting specific funds. In a similar case brought by the Securities and Exchange Commission, Morgan Stanley recently agreed to pay $50 million in civil penalties and investor restitution to settle charges over brokers' failure to disclose compensation deals with mutual funds.
Franklin Templeton confirmed the company had received a subpoena. "A subpoena is a request for information and doesn't imply any wrongdoing," said a spokesperson for the firm.
In a separate case, two weeks ago Franklin admitted that it put three employees on administrative leave for market-timing.
The state attorney general's office wouldn't comment on the other fund firms under investigation. However, one source noted that the case at Morgan Stanley also implicated Pimco and American Funds. Representatives for the two firms were not available for comment.