Magellan Accused of Stock Manipulation : Funds: The company defends portfolio manager’s touting of Micron.
A Boston attorney has filed a class-action lawsuit against Fidelity Investment’s Magellan mutual fund and its portfolio manager, alleging the company manipulated the share price of one of its largest holdings, Micron Technology Inc.
The lawsuit, filed late Monday in U.S. District Court in Boston, stems from reports that the $54-billion fund began selling part of its massive stake in Micron at the same time the fund’s manager, Jeffrey Vinik, was touting the stock.
“The point of the suit is that when a company like Fidelity, that has huge market power, chooses to speak about individual stocks that it has invested in, that it has an obligation to speak the truth,” attorney Glen DeValerio told Reuters.
The lawsuit alleges that Fidelity tried to artificially inflate Micron’s share price so it could sell the stock without driving down the price.
Vinik told U.S. News & World Report in a Nov. 6 interview for its Dec. 11 issue that Micron’s “valuations are reasonable and the fundamentals are still outstanding.”
The interview occurred shortly before Micron shares began falling on concerns of excess supply of computer memory chips.
Micron shares, which peaked at $94.75 in September, closed Nov. 6 at $64.50. On Tuesday, the stock fell $1.625 to $53.125 on the New York Stock Exchange.
Fidelity filings with the Securities and Exchange Commission show that its parent, FMR Corp., sold more than 90% of its holdings in Micron in November, cutting its stake to less then 1.2 million shares from 15.6 million in October.
Magellan held two-thirds of FMR’s stake in Micron before the sell-off began, with nearly 10.5 million shares as of Oct. 31, according to regulatory filings.
“The lawsuit has no merit, and we intend to defend it vigorously,” a Fidelity spokesman said. “Jeff Vinik’s interviews accurately reflect his views and opinions at the time of the interview. Jeff is an active manager, and his views on any stock can change any time.”
News reports said the SEC has launched an investigation of the trades, but an SEC official said the agency’s policy in such cases is to not comment. Because of its massive size, Magellan’s moves in and out of a stock can significantly affect its share price.
The stock market has been closely following Vinik’s moves, wondering whether he would cut Magellan’s stake in the technology sector, which accounted for 43.2% of total holdings at the end of October.
