Late Tuesday afternoon, it was announced that Bank One had agreed to pay a total of $90 million to settle allegations that it allowed hedge funds to make improper trades in its mutual funds. According to Reuters, in the Securities and Exchange Commission’s tenth major settlement over improper “market timing” activities, the bank’s Banc One Investment Advisors unit will pay a $40 million fine and repay $10 million in restitution.
In a coordinated settlement, New York Attorney General Eliot Spitzer said the Bank One mutual fund unit also agreed to cut its fees by $8 million annually over the next five years. Additionally, former One Group Mutual Funds Chief Executive Mark Beeson, 46, agreed to a $100,000 penalty and a 2-year ban from the mutual fund industry. Beeson also agreed to a three-year bar from serving as an officer or director of a mutual fund or investment adviser.
Chicago-based Bank One is the last of the original four financial companies targeted by Spitzer’s office in September for improper trading of fund shares to reach a settlement (See Spitzer Fund Abuse Probe Pumps Out More Subpoenas ). In a press release the SEC said the Bank One unit and Beeson broke securities laws by allowing hedge fund manager Edward Stern to execute about 300 transactions in the One Group funds between June 2002 and May 2003, making about about $5.2 million in the process. The SEC also noted that Bank One loaned money to Stern “with the express understanding that the loan proceeds would be invested in One Group funds.” The SEC said the fund and Beeson let Stern time One Group funds in hopes that he would bring in more business, which created a conflict of interest, and that the unit also did not charge Stern sales fees other investors had to pay.
The SEC said it also found the fund unit “allowed excessive short-term trading in One Group funds by a Michigan market timer in violation of fund prospectuses and failed to collect required redemption fees from a Texas hedge fund.”
The deal was announced just ahead of the scheduled July 1 merger of Bank One with J.P. Morgan Chase & Co.
U.S.regulators have imposed more than $2.3 billion in sanctions since December on about a dozen companies, including Bank of America Corp., which resolved the claims before merging April 1 with FleetBoston Financial Corp.