Sep. 12–Some of Bank of America Corp.’s 134,000 employees are among the thousands of investors who may have lost money because of questionable trading practices in its mutual fund division.
The Charlotte-based bank’s retirement-plan options for employees largely comprise bank stock and bank-owned mutual funds — primarily the Nations Funds allegedly used by a New Jersey hedge fund for illegal trading.
Bank spokesman Bob Stickler said Thursday that the company is planning to communicate “very shortly” with employees about the status of their retirement plans.
The bank has not talked with employees about the possible impact of the alleged illegal trading on 401(k) investments since New York Attorney General Eliot Spitzer alleged last week that Nations Funds managers allowed Canary Capital Partners LLC to engage in illegal trading, which, he said, may have caused long-term investors to lose money.
Bank of America employs about 12,000 workers in the Charlotte area. Stickler said the bank has received “surprisingly few calls into the personnel center.”
The potential effects of the improper trades on Nations Funds investments is still being determined. Bank of America executives have announced internal and external investigations and promised restitution to investors who lost money.
The bank offers employees about a dozen funds as retirement options. They include nine Nations Funds, two funds managed by other investment companies and one other bank-owned fund that is not part of the Nations Funds family.
“Employees have not generally expressed concern, but we do intend, when we have the facts, to communicate directly with them at the same time we communicate with clients,” Stickler said.
A few of the bank’s employees, who asked that their names not be used because the bank’s policy prohibits workers from talking with the media without permission, expressed faith Wednesday that their retirement savings would be safe.
“I think the executives will take care of it,” said one uptown employee. “Everyone feels pretty secure.”
Another employee said he was concerned about the bank’s image and the value of the company’s stock.
As part of the workers’ retirement package, up to 5 percent of an employee’s 401(k) contributions are matched by the company with bank stock, which must be held until the employee is 55 years old.
Bank of America’s stock price has dropped nearly 5 percent since the Canary allegations surfaced last week. The stock rose 73 cents Thursday to close at $75.60 on the New York Stock Exchange.
Neither Bank of America or Spitzer’s office have said how many investors may have been hurt by the alleged improper trades, which occurred between 2001 and 2003.
In a civil complaint against Canary, Spitzer alleged that Bank of America brokers allowed Canary to trade mutual fund shares after the 4 p.m. market close at that day’s market price, a move that is considered illegal. Such trades can capitalize on after-hours increases in share prices, an advantage not afford to ordinary customers.
The complaint states also that brokers were knew that Canary was timing the market, which involves going in and out of the funds in short periods of time, a move that often hurts the value of the funds for other investors.
In May 2001, according to the complaint, Canary notified Bank of America’s brokers that it would be market timing Nations Convertible, Nations International Equity, Nations Emerging Markets and Nations Small Cap funds. The international and small-cap funds are offered to bank employees as 401(k) options.
Kelly Graves, an independent financial adviser at Carroll Financial Associates in Charlotte, said market timing and late trading do hurt longtime investors.
“It’s a zero sum game,” he said. “If somebody is making money off of it, then somebody might be losing money or making less.”
Two New York employees allegedly involved in the improper trading — broker Theodore Sihpol and branch manager Charles Bryceland — apparently have been dismissed.
The complaint says Sihpol brought in Canary as a client in 2001 and that Bryceland commended the relationship.
The offices of Sihpol and Bryceland told The Observer on Wednesday that Sihpol was on administrative leave and Bryceland was no longer with the company. Sihpol’s office told the Associated Press on Thursday he was no longer with the company. His wife declined comment to The Observer on Thursday evening.
Other bank employees named in the complaint are Robert Gordon, chief executive of Banc of America Capital Management, and Richard DeMartini, president of the bank’s asset management businesses, which include mutual funds. The bank has declined to comment on any actions against employees.
Chief executive Ken Lewis said last week that employees involved in improper trading would be punished. But Lewis said he still has much “faith and optimism” in the bank’s workforce.
FUND PERFORMANCE: Bank of America employees are offered more than a dozen funds as part of their retirement benefits, including Nations Funds. Below is a list of those funds and their average annual return according to information dated Dec. 31, 2002, provided to employees.
Stable Capital Fund
1 yr. 5.94 percent
3-yr. 6.30 percent
5-yr. 6.32 percent
Nations Bond Fund
1 yr. 7.47 percent
3 yr. 8.48 percent
5. yr.6.20 percent
Nations LifeGoal Income and Growth Portfolio
1 yr. -3.41 percent
3 yr. 1.64 percent
5. yr. 4.18 percent
Nations LifeGoal Balanced Growth Portfolio
1 yr. -10.14 percent
3 yr. -2.19 percent
5. yr. 3.63 percent
Nations LifeGoal Growth Portfolio
1 yr. –20.64 percent
3 yr. –10.66 percent
5. yr. 0.24 percent
Nations LargeCap Index Fund
1 yr. -22.39 percent
3 yr. -14.84 percent
5. yr. -0.88 percent
Nations Value Fund
1 yr. -19.20 percent
3 yr. -7.94 percent
5. yr.-1.50 percent
Nations MidCap Index Fund
1 yr. -15.01 percent
3 yr. *
5. yr. *
Nations SmallCap Index Fund
1 yr. -15.18 percent
3 yr. -0.51 percent
5. yr. 0.43 percent
Batterymarch U.S. Small Cap Equity Portfolio
1 yr. -12.74 percent
3 yr. *
5. yr.*
Nations Marsico Focused Equities Fund
1 yr. -15.50 percent
3 yr. -17.17 percent
5. yr. 5.46 percent
Nations International Equity Fund
1 yr. -14.53 percent
3 yr. -16.82 percent
5. yr. -1.33 percent
*Not available
SOURCE: Nations Funds Fourth Quarter 2002
—–
To see more of The Charlotte Observer, or to subscribe to the newspaper, go to http://www.charlotte.com.
(c) 2003, The Charlotte Observer, N.C. Distributed by Knight Ridder/Tribune Business News.
BAC,
