BOSTON — Massachusetts Secretary of State William Galvin has been out front on many investor issues, from the perils of day trading to boiler rooms that pitch fraudulent penny stocks. But at themoment, he’s playing second fiddle to headline-grabber New York Attorney General Eliot Spitzer.<\/p>\n
Still, the tough-talking Galvin is gracious about his colleague from the Empire State. ”Even if there is some modest competition,” he says. ”I don’t think it’s a bad thing for investors.”<\/p>\n
Unlike the Yankees and the Red Sox, locked in battle in the American League Championship Series, Galvin and Spitzer are on the same side in the battle against securities fraud. The two securities regulators have at least one thing in common with the ALCS rivals: They are at the top of their game — leading the states in investigating mutual fund trading abuses.<\/p>\n
In July, Galvin and Spitzer teamed on an investigation into Morgan Stanley’s mutual fund sales practices. The inquiry started in March after a whistle-blower contacted Galvin’s office about how Morgan brokers were paid extra compensation for pushing in-house mutual funds. Spitzer got involved when it became clear that the problem went beyond Massachusetts. The Securities and Exchange Commission also is investigating.<\/p>\n
Last month, Spitzer shocked the mutual fund industry with charges that a hedge fund had engaged in improper trading with the mutual fund arms of Bank of America and Bank One and mutual fund providers Strong Financial and Janus Capital. The probe has snowballed.<\/p>\n
The SEC is planning to propose new regulations aimed at preventing mutual fund trading abuses. One hedge fund trader pleaded guilty to securities fraud, and a Bank of America broker has been charged with larceny and securities fraud. Mutual fund companies and brokerage firms have been peppered with subpoenas and requests for information.<\/p>\n
Galvin has acknowledged that he is investigating possible trading irregularities at Putnam Investments and Prudential Securities. He was tipped off to the possible market timing problems at Putnam by an employee, while industry insiders contacted his office about Prudential.<\/p>\n
It’s unclear how pervasive market timing is. But Galvin adds, ”I personally have been approached by mutual fund managers who said to me, ‘You can’t believe the pressure we’re under to market time.’ ”<\/p>\n
Market timing occurs when investors make rapid-fire trades to try to take advantage of price movements. It is not illegal per se. But it might be if it violates the terms of the fund prospectus, Galvin says. Even if it’s not explicitly prohibited in the prospectus, it might be a violation of the fund’s fiduciary duty.<\/p>\n
”We’ve always taken the strong view that if you know something will dilute shareholder value, and if you don’t do something about it, then it’s a violation of fiduciary duty,” he says.<\/p>\n
<B>Tough and aggressive<\/p>\n
<\/B>Galvin, 53, has strong views on many regulatory issues. In Massachusetts, the secretary of state is in charge of securities regulation. Since Galvin was elected to that post in 1994, he has turned what was by many accounts a sleepy agency into an aggressive regulator.<\/p>\n
Galvin, who was re-elected last year, has recovered nearly $20 million for his state’s investors, far more than his predecessors. He has tackled big cases, such as investigating conflicts of interest among analysts and brokers at Credit Suisse First Boston, which became part of Wall Street’s $1.4 billion settlement last year.<\/p>\n
To get the work done with a limited state budget and a 43-member staff, he has had to be creative. In the Credit Suisse case, Galvin hired 11 law student interns to help sift through the avalanche of e-mail circulated among the firm’s employees. By recovering some of the cost of his investigations from securities firms, he has been able to stretch his resources.<\/p>\n
Galvin is tough on wrongdoers, but he also directs his ire at regulators — state and federal. ”We can’t have this slap-on-the-wrist mentality,” he said during an interview in the Massachusetts State House. ”If you look back at all of the various situations that have been uncovered just in the last 18 months you can only conclude that the investor is getting screwed.”<\/p>\n
In Massachusetts, it won’t be so easy for firms to insulate themselves by firing a broker or paying a fine, Galvin says. ”You have to make the people at the top — whether they be branch managers or regional vice presidents or the chairman — responsible for the atmosphere at the firm.” Tougher enforcement, not more regulations, is the answer, he says. That could result in charges being filed against firms as well as their executives.<\/p>\n
The hard-driving taskmaster wasn’t a child of privilege. He grew up in the Brighton section of Boston, and lives there today with his wife and daughter. His mother emigrated from Ireland. His father was born in the USA, raised in Ireland, returned to the USA and worked for the Massachusetts Bay Transportation Authority. Galvin graduated from Boston College and Suffolk University Law School. An election law specialist, he also has served seven terms in the state Legislature. Friends describe him as extremely smart and tough. Adversaries have been known to call him the prince of darkness.<\/p>\n
”He’s one of the most capable and underrated people I know,” says friend and colleague Michael Morrissey, a state senator from Quincy.<\/p>\n
Galvin clearly relishes his work and admits that he is hands-on. ”But I’ve learned that you do have to delegate things, and I’ve tried to surround myself with some very good people.”<\/p>\n
One thing he doesn’t tolerate are slackers. ”He expects everyone to work hard,” Morrissey says. ”The worst thing you can do to him is to try to put one over on him. He’s like a pit bull.”<\/p>\n
Spitzer, who has gotten to know Galvin from their work together, calls the Massachusetts regulator ”tough and aggressive. He’s what securities regulators are supposed to be.”’<\/p>\n","protected":false},"excerpt":{"rendered":"
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