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SEC Eyes Fleet Unit Charges

Improper trading of funds alleged

Jan 16, 2004 | Boston Globe

Federal regulators plan to recommend enforcement action against FleetBoston Financial Corp. on charges of improper trading in its mutual funds, the bank said yesterday.

The Securities and Exchange Commission's investigation focuses on a subsidiary of the bank, Columbia Management Group. The SEC says three of Columbia's mutual funds allowed certain investors to trade rapidly in and out, a practice known as market timing.

Fleet's chief financial officer, Robert C. Lamb Jr., said the allegations focus on a "limited number of trades" between 1998 and 2003 in two domestic funds and one international fund.

The bank told analysts in an earnings conference call yesterday that it does not expect the allegations to affect its pending merger with Bank of America. Bank of America's fund is also being investigated by regulators.

"It's tough to judge the total impact of this, but we don't see any reason to believe this would slow down the merger," Lamb said.

Both subsidiaries have received a "Wells notice" from the SEC, a preliminary indication of regulators' intention to pursue action against a company. It gives the company an opportunity to dispute the allegations and persuade regulators they should not bring charges.

The bank said it is cooperating with the SEC investigation and is working to resolve the issue.

Fleet joins nearly a dozen mutual fund companies nationwide that have been investigated for improper trading, including Putnam Investments and Bank of America.

Richard M. DeMartini, who oversaw Bank of America's asset-management and brokerage arm, was allowed to retire and several other bank officials were dismissed after New York Attorney General Eliot Spitzer said improper trades had been run through Bank of America's mutual funds. Bank of America was not charged in the case, but as a part of its merger with Fleet, the bank's asset-management divisions will move to Boston and be merged into Fleet's operations.

The bank has already acknowledged that it has received subpoenas from several regulators, including New York Attorney General Eliot Spitzer. Spitzer is leading a national investigation into the practices of banks and mutual fund companies.

Fleet's Columbia Management Group is among the largest mutual fund managers in the nation, with more than $140 billion in assets.

The mutual fund investigation likely will not have a long-term negative impact on Fleet or Bank of America, said Gerard Cassidy, an analyst with RBC Capital Markets.

"It's not an overriding concern," he said. "You've got to put it in perspective. It has to be addressed, but in the scheme of what's going on with FleetBoston and Bank of America, it's an issue that will be resolved."

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