NEW YORK — Bank of America and the board of trustees of its Nations Funds family of mutual funds pledged Monday to make ”appropriate restitution” to mutual fund shareholders hurt by impropertrading practices.
The move follows similar pledges by mutual fund providers Janus Capital Group and Strong Capital Management as firms try to recover quickly from allegations that the nation’s $7 trillion mutual fund industry is rigged against small investors.
It’s too early to estimate how much mutual funds would pay in restitution or how they would pay it.
Bank of America also vowed to increase independent oversight of its operations and punish wrong-doers as New York Attorney General Eliot Spitzer’s investigation into alleged mutual fund trading violations kicks into high gear.
Spitzer took part in a series of telephone calls Monday with Securities and Exchange Commission enforcement chief Stephen Cutler and James Comey, the U.S. Attorney in Manhattan, in a bid to coordinate a sweeping probe into illegal or improper trading of mutual fund shares.
The involvement of Comey raises the possibility of federal criminal prosecutions and is likely to put pressure on the funds to cooperate.
”We are always interested in cooperation and look forward to working with Mr. Comey,” Spitzer spokeswoman Juanita Scarlett said. Comey’s office declined comment.
Meanwhile, mutual fund investors began signing on to class-action lawsuits. At least a dozen lawsuits have been launched in recent days, triggered by Spitzer’s $40 million settlement last week with Canary Capital Partners, a New Jersey-based hedge fund.
In Spitzer’s complaint, Bank of America, Bank One, Janus and Strong were accused of providing special treatment to Canary in exchange for banking business from owner Edward Stern, the scion of one of the nation’s richest families. Stern is now cooperating with investigators as the probe turns to the four mutual fund providers and dozens of rivals.
The class-action lawsuits, initiated in California, Colorado, New Jersey and several other states, accuse one or more of the four mutual fund operators of improper trading practices. Most of the lawsuits focus on the illegal practice of ”late trading” in fund shares.
Spitzer accuses Bank of America of letting Canary buy fund shares at their 4 p.m. ET closing prices long after 4 p.m. Spitzer also alleges that Canary was able to make rapid-fire moves in and out of funds that prohibited such trading in their prospectuses.
