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Franklin Punishes 3 Employees For Frequent Trading

Dec 23, 2003 | USA TODAY

Franklin Resources, the fourth-largest U.S. mutual fund company, said Monday that it has placed three employees on administrative leave for frequent-trading irregularities.

The revelations, included in a filing with the Securities and Exchange Commission are the latest in the spreading mutual fund trading scandal.

The San Mateo, Calif.-based company said an internal inquiry has identified some instances of market timing by a few current or former employees in their own 401(k) retirement accounts.

Franklin did not identify the funds or the employees. It did say that one employee is a trader and one, an officer of the funds, has resigned. The company also said an officer of an unspecified subsidiary has been placed on administrative leave for frequent trading. The company said that if it finds unlawful or inappropriate conduct caused losses to its funds, it would make restitution.

Last week, Janus Capital Group (JNS) said it would pay $31.5 million to make up for previously disclosed market-timing arrangements in its mutual funds.

Market timing involves frequent trading, often in international funds, to exploit "stale" prices due to time differences. It is legal but might violate fund rules. It can give market timers a profit at the expense of long-term shareholders.

Franklin, with $322 billion in assets under management as of Nov. 30, also disclosed that it has received subpoenas from federal investigators with the U.S. Attorney's offices for the Northern District of California and the District of Massachusetts. The company said it is responding to those requests as well as to similar requests from regulators in foreign countries where it does business.

Franklin said it has not found any instances of late trading. Late trading is the illegal practice of buying and selling funds after the 4 p.m. ET market close but getting the 4 p.m. price.

The disclosure by Franklin "does not rise to the level of alarm," says Dan Culloton of Morningstar. "But it certainly does send a signal to get your radar up and pay attention to the fund family."

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