More Than a Dozen States Investigating Fund Companies

December 29, 2003 ( - Highly publicized trading irregularities and other accounting shenanigans at mutual funds companies have more than a dozen US states looking into the possible wrongdoing, with many considering legal action in coming weeks.

A Forbes investigation into possible legal action by states reveals at least 15 currently investigating mutual fund firms.   Investors, though, may have to wait before word of further legal action gets out, as many states have laws on the books prohibiting officials from discussing ongoing investigations.

One of those states is New Jersey, where the Garden State’s attorney Peter Harvey told Forbes, “We want to see if market timing and late trading have enriched mutual fund companies, penalized investors who weren’t involved and if so how and whether it can be quantified.   The cases might involve seeking restitution.”

The mutual fund late trading and market timing scandal was triggered when New York State Attorney General Eliot Spitzer revealed a scheme under which Nations Funds permitted hedge fund Canary Capital to trade mutual fund shares at prices that had already been set at the day’s close. Additionally, Canary Capital was alleged to have rapidly traded funds managed by Bank One, Janus Capital and Strong Capital Management.

This in turn led to a number of other firms being swept into the maelstrom since (See  Trading Scandal Tracking Sheet ).