CHARLOTTE, N.C. (AP) – Bank of America Corp. will establish a restitution fund for shareholders of its Nations Funds who lost millions of dollars because of alleged improper trading that gave a hedgefund advantage over other investors.<\/p>\n
“Nothing is more important in our business than the trust and confidence of our customers and clients,” chairman and chief executive officer Ken Lewis said in announcing the fund Tuesday.<\/p>\n
Bank of America had said last month it would repay members of its Nations Fund if an analysis finds investors suffered a loss from alleged late trading with Canary Capital Management LLC. The arrangements allowed Canary to cash in on after-hours news ahead of other investors by getting that day’s closing fund price after 4 p.m., though regulations require those trades to be priced at the next day’s closing price.<\/p>\n
Criminal charges were filed against a BofA broker last month, shortly after he was fired for his alleged involvement in the late trades.<\/p>\n
The Charlotte-based bank is the third investment firm to pledge to make restitution in a widening mutual fund scandal.<\/p>\n
Last month, Canary and its managers agreed to pay $30 million in restitution for profits generated from improper trading and a $10 million penalty to settle allegations lodged by New York Attorney General Eliot Spitzer.<\/p>\n
Janus Capital Group said earlier this month it would return about $1 million in fees it made from short-term trading. Canary’s settlement neither admitted or denied wrongdoing.<\/p>\n
Spitzer said Canary engaged in illegal trading practices with mutual funds operated by Bank of America, Janus, Bank One Corp. and Strong Financial Corp.<\/p>\n
On Tuesday, Fidelity Investments, one of the nation’s biggest mutual fund concerns, said it received a subpoena from Spitzer’s office late last week and is cooperating with the probe.<\/p>\n
“The request for information was regarding market timing and late trading. Those are the same targets for which (Spitzer) is seeking information from several other firms,” Anne Crowley, a spokeswoman for Boston-based Fidelity, said. “We understand it to be part of a broader look at market timing and late trading.”<\/p>\n
Spitzer’s complaint said Bank of America had the most extensive trading relationship with Canary, providing special treatment in exchange for big-money business from the hedge fund’s owner, Edward J. Stern, an heir to the Hartz pet supplies fortune.<\/p>\n
Spitzer charged a former Bank of America broker, Theodore Sihpol III, with larceny and securities law violations.<\/p>\n
And last week, a former trader at Millennium Partner, Steve Markovitz, pleaded guilty to making illegal late trades in mutual funds.<\/p>\n
In Massachusetts, Secretary of State William F. Galvin, whose office regulates securities trading in the Bay State, has launched investigations of financial services firms including Prudential Securities and Putnam Investments.<\/p>\n
Meanwhile, a growing list of mutual fund companies have fired or suspended employees following internal investigations of trading activities.Merrill Lynch & Co., Alliance Capital Management Holding LP and Prudential Securities have suspended or fired a total of at least 17 employees.<\/p>\n
Securities and Exchange Commission chairman William Donaldson said last month the commission will consider tightening oversight of the high-risk, largely unregulated $600 billion hedge fund industry.<\/p>\n
On Tuesday, Bank of America also said it would extend its restitution offer to shareholders of third-party mutual funds who were harmed if Canary, its affiliates, or others fail to make them whole.<\/p>\n
Bank of America’s promise makes it responsible as the source of “restitution of last resort” for the injured mutual-fund holders, spokesman Bob Stickler said.<\/p>\n
The bank also said it has hired Dale Frey, former chairman of General Electric Investment Corp., to handle an independent review of the bank’s mutual fund policies and practices.<\/p>\n
Maureen Scannell Bateman, a former general counsel of State Street Corp. and U.S. Trust, will conduct a legal review of the funds, Lewis said.<\/p>\n
Bank of America said it also employed Promontory Financial Group to coordinate a detailed review of all technology, control, and compliance systems related to the mutual fund business. The review will include all systems relating to sales, clearing, and derivative and brokerage operations.<\/p>\n","protected":false},"excerpt":{"rendered":"
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