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Franklin Disciplines Three In Fund Probe

Employees placed on leave for trading abuses

Dec 22, 2003 | www.cbsmarketwatch.com

Franklin Resources, the fourth-largest U.S. mutual fund company, said Monday that three employees were placed on leave for improper frequent trading in its funds.

In a regulatory filing, Franklin said "a few" current or former employees engaged in rapid "market timing" trading of fund shares in their personal 401(k) accounts. Two of these employees, a trader and an officer, are on administrative leave and the officer has resigned his positions with the funds, Franklin said.

A third employee, an officer of a subsidiary, also is on leave, the company added.

San Mateo, Calif.-based Franklin, with $322 billion in assets under management, oversees the Franklin and Templeton fund families.

A Franklin spokesman declined to elaborate further about the disciplined employees or the funds they traded. In a statement on its Web site on Monday, Franklin said it has identified various instances of frequent trading where it is questioning the "propriety of what occurred." The company added that it has yet to complete an internal probe but has found no instances of inappropriate mutual fund trading by any portfolio manager, investment analyst or officer.

However, Franklin said it has received subpoenas from prosecutors for the U.S. Attorney's office for the Northern District of California and the District of Massachusetts. Franklin, the focus of a Securities and Exchange Commission investigation, has previously disclosed requests for information from New York Attorney General Eliot Spitzer, Massachusetts's Secretary of State and the SEC. See full story.

"These requests for information and subpoenas do not imply any wrongdoing, and neither Franklin Resources, Inc., nor any of our subsidiaries or personnel, has been named in any complaint by the SEC or any other government agency in connection with these ongoing investigations," the company said in a statement.

Franklin's announcement comes after fund giant Janus Capital Group said Friday that it would repay $31.5 million to customers harmed by improper fund trading. Denver-based Janus was among four firms Spitzer named in his September complaint against Canary Capital. Janus allegedly permitted Canary to make improper short-term trades in its stock- and bond funds.

Separately, Franklin said Monday that the SEC has asked it to furnish documents related to its investigation of Morgan Stanley. In November, Morgan agreed to pay $50 million to settle SEC charges of improper fund sales practices.

Morgan, which did not admit or deny wrongdoing, failed to disclose monetary incentives paid to financial advisers and branch managers for steering customers to products of certain fund companies, which in turn paid Morgan for the promotion.


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