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Grand Jury Investigating Trading Abuses In Mutual Fund Industry

Dec 18, 2003 | AP

U.S. attorney Michael Sullivan has convened a grand jury to investigate an array of trading abuses in the mutual fund industry, according to a published report.

The grand jury, active for more than a month, is looking at suspected trading abuses at the Boston office of Prudential Securities, according to The Boston Globe, quoting unnamed lawyers who have been informed of the probe. The grand jury is also investigating a variety of issues involving market timing and late trading throughout the industry, the Globe reported.

U.S. prosecutors have the power to bring criminal charges, which could lead to prison time, unlike the federal Securities and Exchange Commission or the Massachusetts secretary of state's office, which have also probed improper trading of mutual funds by insiders and certain clients.

Sullivan's office has requested information from Prudential Securities, Wachovia (WB) Securities, and Galvin's office, the Globe reported. Galvin, in an interview, confirmed that federal prosecutors requested information about Prudential Securities.

A spokeswoman for Sullivan's office said Thursday she could not confirm or deny any investigation.

Prudential spokesman Robert DeFillippo declined to say whether the company or its employees have received subpoenas from the grand jury.

"We're cooperating with all regulatory authorities," he said.

A spokesman for Wachovia (WB) would not comment, but said the company cooperates with all government investigations as a matter of policy.

Federal prosecutors have also issued a subpoena to Putnam Investments over trading in the company's mutual fund shares. In late October, Putnam faced civil charges of fraud from Galvin and the SEC for allegedly allowing money managers to "market time" mutual funds they supervised.

The investigation also concerns late trading, the illegal practice of executing orders after shares are re-priced with the 4 p.m. close of the market.

Market timing, by contrast, is not illegal but is prohibited by many funds. It involves rapid in-and-out trades in mutual funds to capture short-term movements in the market or specific sectors.


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