Secretary of State William Galvin sent subpoenas yesterday to employees of Fidelity Investments and two other mutual fund firms as his investigators widened their probe into improper fund trades byPrudential Securities brokers in Boston.
Targeted by the subpoenas are specific sales representatives who pitch funds to brokers, a source familiar with the investigation said.
Galvin’s staff is probing whether the sales reps helped some Prudential brokers in Boston evade the fund firms’ internal policies aimed at preventing improper short-term trades of fund shares, the source said.
Among other things, investigators are probing whether the targeted sales reps gave out confidential data about those internal reviews, the source said.
Also subpoenaed yesterday were specific workers at Franklin Resources and Morgan Stanley.
The subpoenas resulted from information that investigators received through depositions of former Prudential brokers, the source said.
Brian McNiff, a Galvin spokesman, confirmed that Galvin issued the subpoenas yesterday, but declined further comment.
A Prudential branch manager and five brokers were forced to resign from the Boston office just weeks after Galvin disclosed his probe of the New Jersey insurer’s one-time brokerage arm last month. Wachovia Securities has since taken control of the office, along with most of the rest of Prudential Securities operations.
Galvin’s investigation eyes a form of short-term trading that takes advantage of delays in the way mutual funds are priced. Many fund firms discourage such trades, partly because they can take money away from long-term investors. Yesterday’s subpoenas could indicate that Galvin is trying to discover whether any fund workers aided the Prudential brokers.
“We just learned about this,” said Anne Crowley, a spokeswoman at Fidelity Investments, when contacted yesterday. “All we know is that a Fidelity employee was sent a subpoena requesting that the employee give information about the Prudential Securities matter.”
Fidelity has long held policies to deter short-term trading, Crowley said. The Boston company, the nation’s largest fund firm, expects employees to abide by those policies, she said.
Galvin subpoenaed a Franklin Resources employee who left the California firm early this year, said company spokeswoman Lisa Gallegos.
The Morgan Stanley employee subpoenaed doesn’t work with U.S.- registered mutual funds, said Morgan Stanley spokeswoman Andrea Slattery. Morgan Stanley discourages “market timing” of its funds and takes steps to identify investors who try to make those trades, she said.
Fidelity and New York-based Morgan Stanley are also among many fund firms that received subpoenas from New York Attorney General Eliot Spitzer as part of his broader probe into fund-trading activities. He accused four big fund firms last month of letting a New Jersey hedge fund make trades at prices unavailable to most investors.
Federal regulators have since launched their own nationwide probes into fund-trading practices.
