Columbia Accused of Trading Abuses
The Columbia mutual funds unit of FleetBoston Financial Corp. became the latest target of trading abuse charges Tuesday.
The Securities and Exchange Commission and New York Atty. Gen. Eliot Spitzer sued Columbia separately for civil fraud, accusing it of a massive market-timing scheme involving West Coast investor Daniel G. Calugar and San Francisco hedge fund Ilytat, along with other traders.
Calugar and Ilytat were among nine companies and individuals allowed to make hundreds of improper trades involving at least 16 of Columbia’s funds from 1998 to October 2003, according to Spitzer’s complaint.
Columbia permitted timing by the favored clients in return for investments that generated management fees, the suit alleges, despite official fund policy barring short-term trading. Market timing, or rapid trading in and out of mutual funds in search of quick profits, cuts into returns for long-term investors in part by driving up transaction costs borne by all, regulators say.
“Columbia managers and executives knew that making arrangements with market timers was harming long-term investors,” Spitzer said, “but they facilitated it because it was a lucrative source of fee revenues.”
Calugar, Ilytat and the other investors, which also included New Jersey-based hedge fund Canary Capital, were not named as defendants in either suit.
FleetBoston did not return calls seeking comment. An attorney for Calugar declined to comment, and Canary and Ilytat could not be reached.
Calugar, who lives in Los Angeles and Las Vegas, is believed to have made at least $175 million in illegal profits through mutual fund trading, authorities say. He was accused by the SEC of civil fraud in December and has not yet filed a response.
Canary, in the mutual fund scandal’s first case Sept. 3, settled charges brought by Spitzer for $40 million without admitting wrongdoing.
Little-known Ilytat is a new name in the mutual fund probe.
FleetBoston is at least the seventh mutual fund firm to be sued by state or federal regulators since the scandal broke.
Shares of FleetBoston, which is being acquired by Bank of America Corp., fell 3 cents to $44.95 on the New York Stock Exchange.
