US fund houses caught in Spitzer’s widening net
Spitzer: motivations questioned
Yuri Bender reports on the NY Attorney General’s funds clean-up campaign. New York attorney general Eliot Spitzer’s mutual funds probe is gathering momentum, with the conviction of James P Connelly Jr, formerly with funds house Fred Alger. Mr Connelly tried to conceal trading arrangements with Texas hedge group Veras Investment Partners.
Mr Spitzer is investigating firms offering preferential deals to round-trading large institutions, at the expense of “buy and hold” retail investors. “Market timing” is not illegal. Charges have been filed against executives of Millennium Partners and Bank of America for the separate and illegal practice of “late trading”.
Mr Spitzer’s office reached a $40m (e34m) settlement with Canary Capital Partners, a hedge group admitting special trading arrangements with Bank of America and Janus.
Janus Capital Group attributed $314m of $4.4bn net outflows in September to “the termination of discretionary frequent trading arrangements”.
An internal e-mail from Richard Garland, chief executive of international business and head of US advisory business, is included in Mr Spitzer’s evidence. Janus believes arrangements were restricted to five US retail funds, and pledged to repay fees earned from institutions to investors. Janus funds sold in Europe are not believed to be affected.
“It appears from our investigation to date that certain employees central to these investigations are no longer employed by Janus,” said Mark Whiston, CEO of Janus Capital Group. Mr Garland remains employed.
Fidelity, Morgan Stanley and Franklin Resources are involved in separate investigations.
“The most dangerous place to be at the moment in New York is between Eliot Spitzer and a camera, as you’re gonna get hit,” said one prominent US fund manager. “The guy is obviously running for something. It’s not yet clear whether what he is doing is for the people or for himself.”
Spitzer: motivations questioned
