WASHINGTON -- Two companies that manage and market Franklin Templeton mutual funds have agreed to pay a total of $20 million to settle federal regulators' charges that they failed to disclose their use of fund assets to pay brokerages for steering customers to the funds.
The Securities and Exchange Commission yesterday said the settlement involves an administrative proceeding against Franklin Advisers Inc. and Franklin Templeton Distributors Inc., which neither admitted nor denied wrongdoing but did agree to strengthen their compliance systems. The $20 million civil fine will go to the funds whose assets were used to pay for so-called ''shelf space" at brokerage firms, spots on lists of brokers' recommended buys for customers.
Last month, Franklin Templeton agreed to pay $18 million to settle a similar complaint brought by California Attorney General Bill Lockyer. The parent company, Franklin Resources Inc., is based in San Mateo, Calif.
Franklin Templeton is among a number of major mutual fund complexes that have agreed to pay hundreds of millions of dollars to settle charges in an industrywide scandal that began in September 2003 over improper trading practices. The fund family agreed last August to pay $50 million in a settlement with the SEC.
The funds had been accused of allowing so-called market timing by favored clients even though the prospectus language prohibited such practices. Market timing is a type of rapid, in-and-out trading that is not illegal, but widely restricted by many funds because it skims profits from long-term shareholders.
In the latest case, the SEC said that from 2001 to 2003, Franklin Templeton Distributors had shelf-space deals with 39 brokerage firms for which it paid $52 million out of fund assets, without adequately disclosing the arrangements to the fund boards or shareholders.
''This settlement reiterates the importance of proper disclosure to the fund boards," said Linda Thomsen, the SEC's deputy enforcement director.
Franklin Resources, in a statement, said it ''believes that settlement of this matter was in the best interest of the company and its fund shareholders."