Sep. 9–The names of two mutual fund companies in Oregon’s college savings plans have surfaced in a national investigation into possible mutual fund trading violations.
Strong Capital Management and MFS Investment Management are among possible targets of New York Attorney General Eliot Spitzer’s investigation into mutual fund trading irregularities.
Oregon officials say there is little cause for alarm for investors who have put $180 million in the mutual funds in Oregon’s four college savings plans. The plans offer tax advantages to encourage parents to save for their children’s education.
So far, it appears the investigation will not affect the Oregon plans or the money invested in them, said Michael Parker, executive director of the Oregon 529 College Savings Network, which oversees the companies Oregon has chosen to sponsor its plans.
“If any impropriety causes a loss to any shareholder, we will make sure that it is made good” through restitution, Parker said. The network’s board also will put pressure on all the companies with whom it contracts to make sure that policies are in place to prevent any future trading discrepancies.
Spitzer has accused a hedge fund called Canary Capital Partners with improperly trading mutual fund shares at the expense of individual, long-term investors. He said funds were improperly traded after market hours or in attempts to time high-volume trades to make money on small price differences, a technique called market timing.
Strong was one of the companies named in Spitzer’s complaint, along with Bank of America’s asset management unit, Janus Capital Group, and Bank One.
Canary agreed to pay $40 million to settle charges that it had engaged in illegal trading practices with the mutual fund companies, Spitzer said last week.
None of the mutual fund firms named in the complaint has been accused of a crime, but Spitzer has said charges are likely.
Bank of America said Monday that it is prepared to make “appropriate restitution” to shareholders who might have lost money because of improper trading of its Nations Funds shares.
The Charlotte, N.C.-based bank also said it was hiring an outside firm to review mutual fund trades involving Canary Capital Partners. Janus issued a similar statement Friday.
Parker, the Oregon college plan director, said he has talked with Strong representatives who said apparent attempts at market timing in the Strong Growth Fund are what attracted Spitzer’s attention. The company has not been charged, and it has launched an internal investigation to find out what happened.
Market timing lots of trades within a short period — a practice that is discouraged by regulators and most mutual fund companies — could, in theory, affect the share price paid by individual and college plan investors.
Strong is unraveling six months’ trades to try to ascertain any effects on the price of the Strong Growth Fund, Parker said. Three Oregon college plan portfolios contain that fund: the Aggressive, Moderate and Balanced portfolios.
After a rocky start during the market’s downturn, the funds in the Oregon college plans have turned in positive numbers this year. The Aggressive, Moderate and Balanced portfolios, for example, were up 16.11 percent, 15.25 percent and 11.48 percent, respectively, in the second quarter ended June 30.
Parker said Strong will have a better idea of the effects on investors, if any, by early next week.
Boston’s MFS Investment Management told Parker that it has no direct relationship with Canary. Canary apparently bought and sold MFS shares in a series of short-term, quick trades through a third party, Parker said.
As with the Strong funds, it is not yet known whether trading in MFS funds affected Oregon college plan investors.
Paul Nowell of the Associated Press contributed to this report.
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