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CalPERS to Review Franklin Resources

Jan 8, 2004 | Bloomberg

The California Public Employees' Retirement System, the largest U.S. pension fund, opened a review of Franklin Resources Inc. on Wednesday amid alleged improper mutual fund trading by three of the fund company's employees.

Franklin Advisors, the fund company's institutional investment unit, manages $780 million in U.S. stocks for the $155-billion California pension fund, CalPERS spokesman Brad Pacheco said.

CalPERS' board has fired Putnam Investments and placed Alliance Capital Management Holding on a watch list, subjecting it to an additional review, after allegations of improper trading. The pension fund's staff plans to meet with San Mateo, Calif.-based Franklin in the next two weeks and present its recommendations to the board at a Feb. 17 meeting.

"The staff wanted to take a closer look, meet with them and do an investigation," Pacheco said.

Franklin, the largest publicly traded U.S. mutual fund company, suspended two employees, including an executive, last month for short-term trading in their 401(k) plans. A third employee was suspended relating to "various instances" of improper trading that Franklin turned up in an internal inquiry.

A Franklin spokeswoman said the company had cooperated with regulators who requested information.

New York Atty. Gen. Eliot Spitzer, the Securities and Exchange Commission and others have been investigating the trading and sales practices of the mutual fund industry.

On Nov. 17, CalPERS fired Putnam as manager of a $1.2-billion international stock portfolio after allegations that its managers, including Omid Kamshad, engaged in frequent short-term trades in funds they oversaw.

Putnam has reached a partial settlement of a civil complaint brought against it by the SEC, agreeing to make changes in corporate governance and compliance practices.

Pacheco said the review wasn't related to California Atty. Gen. Bill Lockyer's investigation of Franklin, Capital Group Cos.' American Funds and Pacific Investment Management Co.

Lockyer subpoenaed the companies Friday as he began an investigation of whether the companies paid excessive fees to brokers to sell their funds without informing investors.

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