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The mutual fund scandal of 2003 was the result of the discovery of both illegal and unethical trading practices on the part of certain hedge fund and mutual fund companies. 2003 is a common year starting on Wednesday of the Gregorian calendar. ...
The term hedge fund dates back to the first such fund founded by Alfred Winslow Jones in 1949. ...
A mutual fund enables investors to pool their money and place it under professional investment management. ...
Spitzer investigation
On September 3, 2003, New York Attorney General Eliot Spitzer announced the issuance of a complaint against New Jersey hedge fund company Canary Capital Partners LLC, charging that they had engaged in "late trading" in collusion with Bank of America's Nations Funds. Bank of America is charged with permitting Canary to purchase mutual fund shares, after the markets had closed, at the closing price for that day. Spitzer's investigation was initiated after his office received a ten-minute June 2003 phone call from a Wall Street worker alerting them to an instance of the late trading problem. September 3 is the 246th day of the year (247th in leap years). ...
State nickname: Empire State Other U.S. States Capital Albany Largest city New York Governor George Pataki Official languages None Area 141,205 km² (27th) - Land 122,409 km² - Water 18,795 km² (13. ...
Eliot Spitzer Eliot Laurence Spitzer (born June 10, 1959) is the current Attorney General for the New York State and a 2006 Democratic candidate for Governor of New York. ...
State nickname: The Garden State Other U.S. States Capital Trenton Largest city Newark Governor Richard Codey (acting) Official languages None defined Area 22,608 km² (47th) - Land 19,231 km² - Water 3,378 km² (14. ...
Bank of America (BofA) (NYSE: BAC), based in Charlotte, North Carolina, is the third largest bank in the United States of America, measured in assets. ...
2003 : January - February - March - April - May - June - July - August - September - October - November - December A timeline of events in the news for June, 2003. ...
View up Wall Street from Pearl Street Wall Street is the name of a narrow thoroughfare in lower Manhattan running east from Broadway downhill to the East River. ...
"Late trading" Late trading is illegal under New York's Martin Act and Securities and Exchange Commission (SEC) regulations due to the unfair advantage the late trader gains over other traders. In the United States, mutual fund prices are set once daily at 4:00 p.m. Eastern time. Late trading occurs when traders are allowed to purchase fund shares after 4:00 p.m. at that day's closing price. Under law, most mutual fund trades received after 4:00 p.m. must be executed at the following day's closing price. Late trading or after-hours trading involves placing orders for mutual fund shares after the 4:00 p. ...
State nickname: Empire State Other U.S. States Capital Albany Largest city New York Governor George Pataki Official languages None Area 141,205 km² (27th) - Land 122,409 km² - Water 18,795 km² (13. ...
The Securities and Exchange Commission, commonly referred to as the SEC, is the United States governing body which has primary responsibility for overseeing the regulation of the securities industry. ...
Canary Capital settled the complaint for US$40 million, while neither admitting nor denying guilt in the matter. The Bank of America stated that it would compensate its mutual fund shareholders for losses incurred by way of the illegal transactions.
"Market timing" Spitzer also charged that major mutual fund groups Janus, Bank One, and Strong had facilitated market timing trading for favored clients. Market timing is an investment strategy that tries to profit from short-term market cycles by trading into and out of market sectors as they heat-up and cool-off. Allowing some clients to market time, while denying that ability to others, is considered unethical. It tends to increase the cost of administering a mutual fund, a cost borne by the rank-and-file fund investors who cannot market time. The firms in question had claimed in their prospectuses that they prohibited market timing. The practice tends to advantage the company's bottom-line and that of its share-holders at the expense of its fund investors. One estimate saw buy-and-hold mutual fund investors losing US$5 billion per year because of market timing trading. Spitzer's complaint alleged that Canary Capital Partners had engaged in market timing transactions with 30 mutual fund companies. Improper market timing is sometimes confused with acceptible market timing--attempts by market participants to purchase securities at a time when they are undervalued by the market and/or sell securities at a time when they are overvalued by the market. Janus may refer to Janus, the two-faced Roman god of gates, doors, beginnings, endings and doorways. ...
Bank One, based in Chicago, Illinois, was the sixth-largest bank in the United States. ...
Market timing is the strategy of attempting to predict future price movements through use of various fundamental and technical analysis tools. ...
SEC investigation The SEC is charged with the regulation of the mutual fund industry in the United States. Following the announcement of Spitzer's complaint, the SEC launched its own investigation of the matter which revealed the practice of front-running. The SEC claimed that certain mutual fund companies alerted favored customers or partners when one or more of a company's fund planned to buy or sell a large stock position. The partner was then in a position to trade shares of the stock in advance of the fund's trading. Since mutual funds tend to hold large positions in specific stocks, any large selling or buying by the fund often impacts the value of the stock, from which the partner could stand to benefit. According to the SEC, the practice of front-running may constitute insider trading. There are two kinds of trading that are referred to as insider trading: Trading of a security of a company (, shares or options) based on material nonpublic information. ...
By early November, investigations led to the resignation of the chairmen of Strong Mutual Funds and Putnam Investments, both major mutual fund companies. In the case of Strong, the chairman himself was charged with market-timing trading involving his own company's funds. In December, Invesco (market-timing) and Prudential Securities (widespread late trading) were added to the list of implicated fund companies. Putnam Investments, a subsidiary of Marsh & McLennan Companies (MMC) since 1970 ([1]), is a global money management firm founded in 1937 and headquartered in downtown Boston, Massachusetts. ...
List of implicated fund companies Bank One, based in Chicago, Illinois, was the sixth-largest bank in the United States. ...
Putnam Investments, a subsidiary of Marsh & McLennan Companies (MMC) since 1970 ([1]), is a global money management firm founded in 1937 and headquartered in downtown Boston, Massachusetts. ...
External links - How Widespread is Late Trading in Mutal Funds? / Eric Zitzewitz (September 2003) (http://faculty-gsb.stanford.edu/zitzewitz/Research/latetrading.pdf)
- New York's complaint against Canary Capital Partners LLC (http://www.oag.state.ny.us/press/2003/sep/canary_complaint.pdf)
- Mutual Fund Scandal Information (About Mutual Funds) (http://mutualfunds.about.com/od/mutualfundfraud/)
- Mutual Fund Industry Scandal / James Atkinson, University of Notre Dame (April 2004) (http://www.jimmyatkinson.com/papers/fundscandal.html)
- Summary of new SEC rules in response to the scandal / Hank Ezell, Cox News Service (August 29, 2004) (http://www.reflector.com/money/content/shared/money/hankezell/04/hank0829_rules.html)
- Summary of SEC initiatives in response to scandal / SEC (March 1, 2004) (http://www.americanbenefitscouncil.org/documents/sec_mutual_fund_initiatives.pdf)
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