FleetBoston Faces SEC, Spitzer's Lawsuit Wrath

February 24, 2004 (PLANSPONSOR.com) - Alleged trading improprieties at FleetBoston Financial Corp's Columbia Funds have led to civil lawsuits from New York Attorney General Eliot Spitzer and the US Securities and Exchange Commission (SEC).

In the lawsuits filed today, Spitzer and the SEC accused the Boston-based Columbia Management Group offraudulently permitting short-term trading in its mutual funds at the expense of long-term investors.   The SEC’s suit seeks restitution for harmed investors and unspecified financial penalties, the Wall Street Journal is reporting.

Last month the company disclosed that the SEC was preparing to charge two of its Columbia funds units for allegedly misleading investors about its market-timing policies and practices (See Fleet Unit Receives SEC “Wells Notice” ). In its disclosure, Fleet said the “majority” of trades were in just three funds,Columbia Newport Tiger Fund, Columbia Growth Stock Fund and Columbia Young Investor Fund, a portfolio aimed at helping children and teenagers save money .

The trading arrangements in question began in the funds when they were owned by Liberty Financial, which Fleet purchased in 2001, but continued after the acquisition.   Those arrangements involved a handful of hedge funds that were allowed to market-time more than $100 million in the mutual fund in question(See  Investors Market Timed $100M in Fleet Funds ).

The agreements apparently set limits on the amount and frequency of trading in the funds to keep the market-timing to amounts that mutual fund officials at the time believed would not harm the funds’ operations or performance. But the market timers often traded more than they were allowed to, and on some occasions, Fleet’s fund employees moved to stop the trading.

Fleet’s Columbia Management Group, with $160 billion under management, is the third Boston mutual fund complex implicated in the industry wide scandal, along with MFS Investment Management and Putnam Investments.