Nov. 20–Fidelity Investments, the nation’s largest mutual fund company, is coming under growing scrutiny in an industry-wide probe of improper trading.
The Boston-based firm, which manages about $905.6 billion in assets, said yesterday that Massachusetts securities regulators have subpoenaed information about the personal trading records of its international stock fund managers.
Anne Crowley, a spokeswoman for Fidelity, noted that subpoenas are requests for details, and are not allegations of wrongdoing.
Fidelity had said earlier it is among more than 100 firms subpoenaed by New York State Attorney General Eliot Spitzer, whose September allegations of improper trading by a hedge fund sparked probes by other regulators including the Securities and Exchange Commission.
News of Fidelity’s subpoena from Massachusetts Secretary of the Commonwealth William Galvin, first reported yesterday in the Boston Globe, broke as the U.S. House of Representatives passed the first federal legislation addressing abuses in the $7.1 trillion mutual fund industry. The bill, which the House passed by 418-2 yesterday, requires funds to hire independent compliance officers and make more disclosures about fees. It also mandates at least two-thirds of funds’ directors be independent of management and bars people affiliated with most funds from engaging in short-term trading.
Senate leaders said they don’t expect to introduce the legislation until next year. The SEC is expected to vote on proposed new rules for the industry Dec. 3.
Last Monday, Fidelity was identified as one of 16 mutual fund companies involved in what SEC enforcement director Stephen Cutler called an “exclusive club” of funds that paid “substantial fees” to Morgan Stanley so that the firm’s brokers would recommend them to customers. Morgan Stanley, without admitting or denying wrongdoing, agreed to pay $50 million to settle the SEC’s charges it didn’t tell customers about the arrangements.
Although no fund companies were charged, Cutler said the agency is still investigating. Crowley said yesterday all of Fidelity’s relationships with Morgan Stanley are “lawful and appropriate.”
According to the Globe, John Hancock Funds, Loomis Sayles & Co., MFS Investment Management, Pioneer Investment Management and Scudder Investments also were subpoenaed by Galvin.
A John Hancock statement said it was subpoenaed “concerning some funds which are sub-advised by independent third parties.” Loomis Sayles hasn’t received a subpoena, spokesman Christopher Lazzaro said yesterday. Scudder issued a statement saying that, as with “at least 88 mutual fund complexes,” it has been cooperating with regulators over the past several months.
An MFS spokesman, John Reilly, declined comment, and Pioneer didn’t return calls.
This story was supplemented by wire reports.
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