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Spitzer Seeks Restitution of Fund Fees

Nov 3, 2003 | WWW.CBSMARKETWATCH.COM New York Attorney General Eliot Spitzer said he wants mutual fund companies and managers found guilty of unlawful trading activities to pay back fees they charged investors.

"We will not permit them to retain the fees they received in violation of their fiduciary duty," Spitzer told reporters Monday after testifying in the first of three congressional hearings into fund industry trading abuses this week. "That is a simple rule that will not be breached or else we will litigate with them."

"They're going to get the comeuppance they deserve based on their years of failing to police themselves," he said of mutual funds and and fund managers that have allowed illegal trading.

Short-term trading of mutual funds by preferred customers a practice known as "market timing" that's banned by most fund policies cost individual investors between $5 billion and $6 billion in losses per year and led to $10 billion a year in unjustified fees, regulators said Monday.

Spitzer said any settlements his office negotiates will require the funds to forfeit fees they earned during the time illegal trading activity occurred.

Spitzer is expected to bring charges against Strong Funds and possibly its chairman, Richard Strong, for improper trades. Strong resigned as chairman of the firm's mutual fund group but will remain as chairman of parent company, Strong Capital Management.

Two months ago Spitzer ordered hedge fund Canary Capital Partners and its managers to pay $30 million in investor restitution for market-timing and late-trading abuses.

SEC Enforcement Director Stephen Cutler testified Monday before the Senate subcommittee on governmental affairs, alongside Spitzer, that twenty-five percent of the nation's largest broker-dealers engaged in illegal trades.

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