Mass., N.H. broaden probe
States seek records of managers' trades at 6 Hub fund firms
Massachusetts and New Hampshire regulators have opened a broad joint investigation of the mutual fund industry in Boston by subpoenaing trading records of money managers at six fund companies, including the nation's largest fund family, Fidelity Investments.
People involved in the two-state probe said subpoenas were sent out Monday night to Fidelity, MFS Investment Management, Loomis Sayles & Co. L.P., John Hancock Funds, Pioneer Investment Management Inc., and Scudder Investments. The six firms were chosen based on the size of their operations in Boston.
Regulators are looking to see whether other investment firms in Boston have experienced the trading problems that have been discovered at Putnam Investments, which has been charged with fraud by federal and state regulators for allegedly allowing several money managers to repeatedly trade in and out of funds they directly supervised, a practice known as market timing.
Officials involved in the inquiries cautioned the new probes are preliminary and don't necessarily mean the firms have done anything wrong. However, Massachusetts Secretary of State William F. Galvin said his office, which regulates securities here, and New Hampshire, is not on a fishing expedition.
"It's not, `Let's round up the usual suspects,' " said Galvin. "At this point, people should not infer simply because we asked for information from a firm, that there's something wrong there. They may infer that we have a reason to ask."
Nonetheless, the joint Massachusetts-New Hampshire effort is another example of how investigations into mutual fund trading and sales practices continue to expand by the week. Yesterday Securities and Exchange Commission chairman William H. Donaldson said his agency has sent notices to "a number of funds" that they are targets of formal investigations by the SEC's enforcement staff, which has found "egregious evidence" of abuses related to the trading scandal that's ripped through the industry.
In the Massachusetts-New Hampshire inquiry, regulators are limiting their requests to the personal trading records and some related personnel information from portfolio managers who run international funds for the firms, since such funds are often the target of traders seeking to make profits on the time differences between overseas and domestic stock markets.
Mark Connolly, New Hampshire's director of securities regulation, declined to provide specifics about his office's inquiries. But Connolly said he approached Galvin's office, which has been at the forefront of some of the investigations in mutual fund trading abuses, and offered to help.
"We are joining his effort to uncover wrongful activities so investors can see these problems are being addressed with the end result that the mutual fund industry can move forward in a positive fashion," Connolly said.
"Fidelity did receive a subpoena from Massachusetts seeking trading information for some fund managers," said spokeswoman Anne Crowley, who cautioned that "it is not a statement of allegation." Fidelity, the nation's largest mutual fund company, has 29 funds with international holdings, and a total of $905.6 billion in assets under management.
Spokesmen for Pioneer, which manages five international mutual funds, and MFS, which has 10 international and global funds, declined to comment. Chris Lazzaro, a spokesman for Loomis, Sayles, said "we haven't received anything as of yet." The firm has $50.7 billion in assets and one international equity fund.
Missy DeAngelis, a spokeswoman for Scudder, which is owned by Deutsche Asset Management, said in the past several months the firm has received numerous requests "to provide detailed information to regulators as one of at least 88 mutual fund complexes and 34 broker-dealers identified in connection with the industrywide market timing and late trading inquiries. We continue to cooperate fully with these requests."
Hancock, in a statement, confirmed receiving a subpoena from Galvin's office, among other recent requests for information from regulators.
"It is our understanding that these requests are not the result of any specific information or allegaions concerning John Hancock," the company said.
Andrew Caffrey can be reached at firstname.lastname@example.org; Jeffrey Krasner at email@example.com.
© Copyright 2003 Globe Newspaper Company.