Sep. 4–State Attorney General Eliot Spitzer accused several investment banks and mutual funds of engaging in fraudulent after-hours tradings that cost small investors billions of dollars.<\/p>\n
Spitzer said Bank of America, Bank One, Janus Funds and others allowed Edward Stern — son of billionaire Leonard Stern — to trade each firm’s mutual funds at a price the small investor could never get — in exchange for other Stern business.<\/p>\n
“In return for the blatantly illegal behavior were very substantial” fees the banks collected, Spitzer told a packed news conference yesterday, brandishing a thick book of company E-mails reminiscent of his probe of Wall Street research. “Bank of America was being bought off.”<\/p>\n
Edward, 38, agreed to pay $30 million in restitution and a $10 million fine. Leonard is the former chairman of Hartz Mountain, known for its bird seed. The family’s fortune is estimated at $2.2 billion.<\/p>\n
Using the trading schemes, the younger Stern and his firm Canary Capital Partners earned a 50 percent return for his own wealthy investors in 2000, compared with a 6 percent decline in the Dow.<\/p>\n
Stern and Canary — a name that reflects the start of his family’s fortune when a friend of Stern’s grandfather paid back a loan with 5,000 singing canaries — admitted no wrongdoing.<\/p>\n
Spitzer said he hasn’t come to any similar deals with the banks and mutual funds.<\/p>\n
“I see this as an opportunity, with the settlement with Stern and his cooperation, to lay out a problem that needs to be remedied,” Spitzer told the Daily News.<\/p>\n
Spitzer alleged the banks and mutual fund companies used “late trading” and “market timing” to profit at small investors’ expense.<\/p>\n
In late trading, sophisticated investors buy shares of mutual funds based on the previous day’s price, pocketing gains that could have gone to long-term investors.<\/p>\n
In market timing, investors buy and sell mutual fund shares quickly. The trading adds costs and may force the fund to sell stocks to raise cash, which could increase taxes — all expenses born by small investors in the funds.<\/p>\n
Bank of America, Bank One, and Janus all said they were cooperating.<\/p>\n
Spitzer’s probe comes as the Securities and Exchange Commission continues its investigation of mutual funds and hedge funds. The SEC and Spitzer aren’t working together yet on their probes.<\/p>\n
Spitzer’s announcement “further illustrates the importance of the SEC’s ongoing review of both hedge funds and mutual funds and the SEC’s upcoming recommendations for both,” SEC chairman Bill Donaldson said in a statement.<\/p>\n
—–<\/p>\n
To see more of the Daily News, or to subscribe to the newspaper, go to http:\/\/www.NYDailyNews.com<\/p>\n
(c) 2003, Daily News, New York. Distributed by Knight Ridder\/Tribune Business News.<\/p>\n
BAC, ONE, JNS,<\/p>\n","protected":false},"excerpt":{"rendered":"
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