SEC Considers Action Against Franklin Resources Unit, 2 Execs

Franklin Resources Inc., manager of the popular Templeton funds, Monday said federal regulators were considering an action against one of its units and two senior executives related to its improper trading activities.

The San Mateo, Calif.-based company did not say what the action might entail, and declined to comment. A Securities and Exchange Commission spokesman said the agency does not comment on investigations.

A person close to the matter said the SEC had documented market-timing activities at Franklin that go beyond a complaint filed last week by Massachusetts Secretary of the Commonwealth William Galvin.

Market timing involves quick-paced trading that most funds prohibit in their prospectuses, as it diminishes the return of long-term investors.

The SEC, which has concluded an investigation that began in early November, determined there was more than one investor involved in market timing at Franklin, the source said.

Franklin in the filing said it was confident no investors were harmed by an unauthorized arrangement made by a company officer with an investor in 2001. The officer was placed on administrative leave, as reported in December, and subsequently resigned, the company said.

Franklin has said it had identified some instances of market timing by a few past and present employees in their personal retirement accounts. Those involved included a trader and the aforementioned executive of Franklin’s funds.

Galvin’s complaint focused on Las Vegas investor Daniel Calugar, majority owner of Security Brokerage Inc., who also was involved in improper trading at Alliance Capital Management Holdings and MFS Investment Management, a unit of Sun Life Financial Services of Canada Inc.

Galvin on Thursday said Franklin allowed Calugar to market time $45 million in one of its funds in exchange for a $10-million investment. The case showed special treatment for a “high roller” at the expense of ordinary investors, he said.

Shares of Franklin closed down 18 cents to $56.84 on the New York Stock Exchange.