SEC Chief Criticizes 2 Attorneys General

Securities and Exchange Commission Chairman William Donaldson on Tuesday criticized the Oklahoma and New York attorneys general for leaving Washington out of the loop on separate actions involving WorldCom Inc. and alleged improper trading in mutual fund shares.

“Unfortunately, there’s been a politicization, if you will, of enforcement in some areas of the country. This is very dangerous,” Donaldson said at a Senate Banking Committee hearing.

Oklahoma Atty. Gen. Drew Edmondson last month charged WorldCom, its former chairman, Bernard J. Ebbers, and five other former officers with breaking state securities laws. WorldCom and its executives have been under federal investigation for months, and the company is trying to emerge from a bankruptcy reorganization.

Federal regulators are concerned that the Oklahoma action, and any other state charges that may follow, could complicate and undermine their case.

“When you have people coming in from left field who are not communicating with people who are handling these procedures ... that’s extremely dangerous,” Donaldson said.

“To my knowledge, Oklahoma, just to cite an example, did not consult with the authorities that were handling the case.... They certainly didn’t consult with the SEC, and I think that’s not good,” he said.

In another example of a state acting independently, New York Atty. Gen. Eliot Spitzer last week accused a hedge fund, Canary Capital Partners, of improper trading in shares of mutual funds sold by Bank of America Corp., Bank One Corp., Janus Capital Group Inc. and Strong Capital Management Inc. Spitzer did not charge the fund companies with wrongdoing but said he was continuing to investigate their roles in Canary’s alleged schemes.

Donaldson commended Spitzer but added, “We wish that he’d talked to us about it.”

According to published reports Tuesday, the SEC is investigating brokerage Prudential Securities for possible violations in trading fund shares. The SEC’s probe of Prudential’s Boston office follows allegations by Massachusetts securities regulators that some of the firm’s brokers traded in and out of funds for quick profit, at the expense of long-term investors.

After Spitzer unveiled his probe last week, the SEC said it was seeking information on trading practices from several mutual fund companies.

From Reuters and Bloomberg News