Nov. 21–Waddell & Reed Financial Inc. has so far found no signs of improper trading in its mutual funds, the company’s CEO said Thursday at a conference in New York.
American Century Investments and the Buffalo Funds, both based in the Kansas City area, also said Thursday that their funds were free of the various problems that have surfaced in parts of the industry.
An increasing number of fund families have reported or been charged with allowing improper market timing and illegal late trading in mutual fund shares.
Market timing involves buying and selling shares in a fund to take advantage of stale fund prices, especially in international funds. Late trading allows the perpetrator to take advantage of news learned after the stock market has closed for the day.
Keith Tucker, head of Waddell & Reed, provided an update of the Overland Park company’s internal review that had been triggered by government requests for information.
Tucker, speaking at a Merrill Lynch conference, went through a checklist of industry problems, saying each time that Waddell & Reed had found no evidence of them in its funds.
“As of right now, I can say we have found no evidence of illegal late trading,” Tucker said. “We have found no evidence of our executives (engaging in) market timing. We have found no evidence of our portfolio managers (engaging in) market timing.”
Tucker said the review found no improper disclosures of the funds’ investment holdings and no improper agreements with brokerages. He said the company had no hedge funds under management and had not withheld volume discounts on sales commissions that investors were due. Nor has Waddell & Reed lost business from pensions or other institutional clients over the issues that have prompted departures from other fund companies where these problems have surfaced.
Waddell & Reed was subpoenaed in September by New York Attorney General Eliot Spitzer, who launched the industrywide trading scandal Sept. 3. The Securities and Exchange Commission also requested information from Waddell & Reed and many other large fund groups.
Tucker said Thursday that the company continues to respond to those requests, which means the internal review continues as well.
American Century Investments has not been subpoenaed, but did receive the information request that regulators sent to many large firms, spokesman Chris Doyle said.
Doyle said the fund company has policed its funds for improper market timing for several years. A review of executives’ accounts in American Century funds found no market timing, and reviews of other employees’ accounts are under way, Doyle said.
American Century chief executive Bill Lyons posted an update letter on the company’s Internet site last week saying the fund group does not allow and guards against late trading, market timing and insider abuse in its funds.
“We would never permit abusive trading in our funds in return for some other benefit to the investment manager,” Lyons wrote.
“Also, we are redoubling our efforts to stop market timing through intermediaries, the biggest challenge for all investment managers.”
Intermediaries include brokerage firms, investment advisers, administrators of retirement plans, insurance companies and mutual fund supermarkets that sell mutual funds. These groups accept trades from individual investors until the stock market closes and forward them to the fund companies.
Because the investors don’t deal directly with the fund companies, the funds cannot directly police market timing activity. Also, the intermediaries’ processing time means the trades reach the fund companies after the market has closed.
Doyle said American Century has required the intermediaries it deals with to recertify that they abide by contracts that allow them to send only trades the intermediaries have received and entered into their systems by the time the stock market closes.
Lyons’ letter said American Century supports an industry call to require even intermediaries to deliver trades to funds by the close of the stock market.
John Kornitzer, whose Mission-based company manages the Buffalo Funds, said his firm received neither a subpoena nor an information request. The group regularly polices its funds for market timing and regularly reviews fund managers’ accounts to ensure that they have not traded in the funds, he said.
—–
To see more of The Kansas City Star, or to subscribe to the newspaper, go to http://www.kansascity.com.
(c) 2003, The Kansas City Star, Mo. Distributed by Knight Ridder/Tribune Business News.
WDR, WDR.B,
