Oct. 8–Bank of America Corp. on Tuesday broadened its promise to reimburse mutual fund shareholders hurt by questionable trading practices under investigation by New York Attorney General EliotSpitzer.
Less than a month after the Charlotte bank said it would compensate shareholders of its own Nations Funds, it pledged to pay back owners of other mutual fund families adversely impacted.
Bank of America also said it had created a restitution fund for shareholders “harmed by the late trading and market timing practices” of New Jersey hedge fund Canary Capital Partners.
The bank did not disclose how much restitution it expects to pay or what other fund families may have been affected. Canary traded Nations Funds as well as other funds through Bank of America, a bank spokesman said.
Bank of America on Tuesday also said Dale Frey, retired president of General Electric Investment Corp., would lead a review of the company’s mutual fund practices. In addition, Maureen Scannell Bateman, a former State Street Corp. general counsel, will examine legal and regulatory compliance, and Promontory Financial Group will review technology and compliance systems.
“Bank of America is committed to a comprehensive road map to ensure that our company’s policies and practices in all of our businesses remain at the highest level of industry standards,” Bank of America Chairman Ken Lewis said in a statement.
Spitzer last month reached a $40 million settlement with Canary over improper trading practices with four mutual fund families. He said Bank of America had the most extensive trading relationship with the hedge fund.
According to Spitzer’s complaint, Bank of America employees allowed Canary to trade mutual funds after the 4 p.m. market close at that day’s market price, which is illegal. Such trades are not afforded to ordinary customers.
The complaint also alleges that some of the bank’s employees knew that Canary was “timing” the market, which involves going in and out of the funds in short periods of time, which can diminish the value of other investors’ holdings because of increased transaction fees and taxes on gains. The bank has not been charged with wrongdoing, but an ex-broker faces criminal and civil complaints.
Nations Funds’ independent trustees last month hired New York law firm Willkie Farr & Gallagher LLP to investigate Spitzer’s claims. They also retained Deloitte & Touche LLP to determine whether fund shareholders lost money and to calculate possible restitution. Bank spokesman Bob Stickler said these firms were still determining the possible losses to shareholders.
A spokesman for Spitzer declined comment Tuesday. Stephen Cutler, enforcement chief for the Securities and Exchange Commission, said in a statement “the commitment by firms to make restitution can only be viewed as a positive for investors.” The SEC also is investigating the nearly $7trillion mutual fund industry.
Burt Greenwald, a Philadelphia-area mutual fund consultant, praised Bank of America for its proactive response to the fund probes but said it will be difficult to determine how much shareholders lost from improper trading. “I think that is very hard to pin down,” Greenwald said. “I’m not sure whatever figure they come up with will be an accurate figure.”
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