BofA Expands Mutual-Fund Repayment
Bank of America Corp. on Tuesday expanded its pledge to reimburse mutual fund investors who lost money because of alleged improper trading that gave a hedge fund an advantage over other investors.
The bank, based in Charlotte, N.C., said it would repay investors in any mutual fund who lost money because of questionable trading practices permitted by the bank, if the loss can’t be recovered from another party.
Previously, Bank of America said it would compensate holders of its in-house funds, the Nations Funds.
Spokesman Robert Stickler declined to name a specific amount that the bank might expect to pay.
But at least one regulator praised the bank. “Commitments by firms to make restitution to harmed investors can only be viewed as a positive for investors,” said Stephen Cutler, enforcement chief at the Securities and Exchange Commission.
New York Atty. Gen. Eliot Spitzer on Sept. 3 announced a widespread investigation into illegal or improper fund trading practices that may have hurt the returns earned by buy-and-hold fund investors.
Spitzer said Bank of America and at least three other fund companies allowed a hedge fund, Canary Capital Partners, to engage either in after-hours trading or rapid “market timing” trades, in return for bringing other fee-generating business to the companies.
Spitzer’s probe of the fund industry is continuing, and the SEC also has launched an investigation into fund practices.
Separately on Tuesday, San Mateo, Calif.-based Franklin Resources Inc. became the latest major fund company to confirm that it had received a subpoena from Spitzer’s office.
Franklin manages the Franklin and Templeton funds. The firm said that Spitzer’s inquiry “in no way implies any wrongdoing by Franklin Resources.”
Subpoenas are requests for information and don’t necessarily indicate that a company has violated the law.
Spitzer’s court complaint last month said Bank of America had had the most extensive trading relationship with Canary. The other three companies named in the complaint were Bank One Corp. (the One Group funds), Janus Capital Group Inc. and Strong Capital Management. None of the four companies has been charged with wrongdoing.
Bank of America said Tuesday that it had hired Dale Frey, former chairman of General Electric Investment Corp., to handle an independent review of the bank’s mutual fund practices. The bank also said it had commissioned a detailed review of all technology, control and compliance systems related to the mutual fund business.
“What we’re trying to do is convince people the problems that occurred aren’t the way we normally do business,” Stickler said.
Bank of America shares eased 10 cents to $80.35 in New York Stock Exchange trading.
