Panel Considers Action in Fund Scandal

From Associated Press

The government is conducting a broad sweep of the mutual fund industry and more charges are likely in the growing scandal in the $7-trillion business, a top SEC official told a House subcommittee Tuesday.

Stephen Cutler, head of the Securities and Exchange Commission’s enforcement division, said the SEC planned to send notifications to some firms this week that investigators intended to file civil charges. He did not name any of the companies.

Cutler spoke to a House Financial Services subcommittee as the scandal spread to Prudential Securities Inc., with the SEC and Massachusetts securities regulators filing civil charges alleging improper trading by former brokers and branch managers at the company’s Boston office.

The move followed Monday’s news that Lawrence J. Lasser, chief executive of Boston-based Putnam Investments, was stepping down after the filing of civil fraud charges against the fifth-largest mutual fund company.


The subcommittee is considering legislation to stiffen penalties for fraud in mutual fund management.

New York Atty. Gen. Eliot Spitzer told the subcommittee members they should consider doing something to revamp firms’ internal compliance.

Republican Richard H. Baker of Louisiana, the subcommittee chairman, said he was concerned that inaction by Congress could hurt the economy. Spitzer said the problems were more pervasive than excising a few “bad apples.”

“It’s beginning to appear that the entire crate is rotten,” he said.


The SEC began a mutual fund investigation in September, and dozens of firms have been subpoenaed, including Fidelity Investments, Janus Capital Group, Morgan Stanley and Vanguard Group. Several companies, including Janus and Bank of America, pledged to make restitution.