Sep. 11–Bank One will make “appropriate restitution” to mutual-fund shareholders who were harmed by improper trading with Canary Capital Partners, Chief Executive Jamie Dimon said.
Dimon said Bank One is evaluating the trading policies of its One Group of mutual funds and will determine if the bank followed those policies during its dealings with Canary Capital.
New York Attorney General Eliot Spitzer last week announced a $40 million settlement with Canary, alleging that it engaged in illegal and unethical trading with mutual funds including five One Group funds. The One Group is managed by Columbus-based Banc One Investment Advisors.
Bank One joins Bank of America and Janus Capital Group in promising to pay back shareholders who lost money as a result of the transactions.
Bank One’s inquiry is being led by the bank’s chief legal officer, Christine Edwards.
“If our analysis shows that any of our mutual-fund shareholders were damaged, we will do the right thing and make appropriate restitution,” Dimon said.
Bank spokesman Tom Kelly said the inquiry would last “until we make sure we’ve got it right.” Spitzer’s charges shocked many in the $7 trillion mutual-fund industry. He alleged that Canary engaged in after-hours trading, which violates Securities and Exchange Commission regulations, as well as “market timing.” Both give some investors advantages others lack.
A complaint filed in New York Supreme Court said Canary conducted most of its questionable trading activities with Bank of America. It alleged that Canary had a market-timing arrangement with One Group, allowing rapid sales of large numbers of mutual-fund shares.
Bank One said it penalizes such high volume of trades, but the complaint states Bank One waived those fees in Canary’s case.
What type of compensation One Group shareholders will receive is unclear. Canary also has agreed to pay $30 million as restitution to investors, though a spokesman for Spitzer said last week it wasn’t clear how that would be distributed.
Andrew Karolyi, a finance professor at Ohio State University, said the big issue isn’t whether Canary’s strategy adversely affected shareholders.
“The problem here is the ethics and possible legalities of giving (hedge) funds privileges that other investors don’t have,” Karolyi said. “The whole force at work is leveling the playing field, not giving unequal access to the markets.”
Market timing is a gray area of mutual-fund trading. While technically not illegal, most mutual-fund companies levy penalties on market timers in an attempt to give all investors equal access to the funds.
“Nothing is more important to us than maintaining the highest ethical standards,” Dimon said. “I promise we’ll do the right thing in this situation.”
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(c) 2003, The Columbus Dispatch, Ohio. Distributed by Knight Ridder/Tribune Business News.
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