Oct. 16–A Bank One Corp. executive has quit in the wake of accusations the bank allowed questionable trading in its mutual funds at the expense of other investors.
Mark Beeson, president of Bank One Investment Advisors and the executive who allegedly allowed the trading, has resigned, according to Bank One memos. Beeson oversaw management of mutual funds with more than $100 billion in assets.
The New York attorney general’s office says an investment firm, Canary Capital Partners, made rapid-fire trades in mutual funds offered by Bank One and other institutions.
Bank One acknowledged that Canary was allowed to make the in-and-out trades for 11 months ending in May. The bank ordinarily discourages or prohibits such trading, known in the industry as “timing,” because it increases the administrative expenses paid by all of the funds’ investors.
Prosecutors say that Beeson met with Edward Stern, managing principal of Canary, in the spring of 2002.
Beeson allegedly accepted a proposal by Stern to carry out the timing trades in exchange for the bank lending Canary $15 million at a high rate of interest, according to court documents filed in the case by the New York Atty. Gen. Eliot Spitzer. Canary was also to consider making an investment in a Bank One hedge fund.
“Our managers are willing to work with you,” Beeson said in an e-mail to Stern, according to the documents.
“Here is the list of mutual funds we would like to trade, along with some other relevant information about the trading we want to do,” Stern said in an e-mailed reply.
Beeson could not be reached for comment Wednesday. Dave Kundert, chief executive of investment management, has been appointed to his position.
Also leaving the bank is John AbuNassar, who was in institutional asset management, according to a Bank One memo. A bank spokesman would not say whether AbuNassar played a role in the trading. Norm Cook, an investment manager, was appointed to fill that post.
Dan McNeela, an analyst for Morningstar Inc., said the personnel changes are a good start.
“This confirms our opinion that [Bank One Chief Executive] Jamie Dimon is taking the matter seriously, but it may not be enough simply to ask a couple of executives to leave and say everything is OK,” McNeela said.
Dimon also reiterated the bank’s offer in September to make investors whole if Canary’s trading caused them losses.
“We continue to work to determine whether One Group investors were financially harmed by this trading–and if they were, we will make full restitution,” Dimon said in a written statement.
Dimon acknowledged that Canary was permitted to trade more frequently than other customers.
“We regret that Canary was given special treatment,” Dimon said. “It should not have happened.”
Prosecutors have alleged that other banks and mutual funds allowed Canary to buy or sell shares of funds after the stock market had closed. Canary earned millions of dollars in profit by using after-hours trading, according to court documents.
“We conducted our own internal review on after-market trading,” Dimon said. “We found no evidence of Bank One or Bank One employees making the type of after-market trading arrangements that have been alleged at other institutions.”
Bank One has not been charged with any crime in connection with the Canary situation.
Reuters contributed to this report.
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