An unnamed US Securities and Exchange Commission (SEC) official wouldn’t give details of the evidence his agency has uncovered, but said the SEC’s investigation was “much broader” than that of Massachusetts Secretary of State William Galvin’s, the Associated Press reported. “It documents market timing beyond one guy in Las Vegas,” the unnamed official said of the SEC investigation.
In a civil complaint filed Wednesday, Massachusetts securities regulators described an arrangement in which Franklin, which operates the Franklin Templeton funds, allegedly allowed Las Vegas broker Daniel Calugar to market-time $45 million in exchange for a $10 million hedge fund investment (See Massachusetts Hits Franklin with Fraud Charges ).
The Massachusetts Securities Division suit charged that top Franklin officials were complicit in the arrangements with Calugar, who had already been accused by the SEC of earning $175 million from improper trading in mutual funds managed by Alliance Capital Management and Massachusetts Financial Services.
As regulators have with other companies caught up in the fund scandal, Massachusetts authorities contend that Franklin committed fraud by turning a blind eye to the market-timing practice despite promises to other customers not to tolerate it.
San Mateo, California-based Franklin, the fourth largest mutual fund company by assets and now the largest to be charged in the mutual fund scandal, is in settlement talks with the SEC and an agreement is expected to be finalized within weeks, the SEC official said, according to the AP.
The company had already revealed that it was being investigated by the SEC, state authorities in California, New York and Massachusetts, and federal prosecutors in California and Massachusetts.
In a message to shareholders posted earlier this month, Franklin said an internal inquiry had uncovered “various instances of frequent trading where we have questions about the propriety of what occurred.”
In a statement released Wednesday, Franklin said no investors were hurt by the transactions described in the Massachusetts complaint, and that it was cooperating with authorities.
“This complaint arises from activity that occurred in 2001 during which time an officer of a company subsidiary proposed an agreement with an investor. This proposal was unauthorized and was rejected by management,” Franklin asserted in the latest statement. “This is the same individual who, as the company had disclosed in December, had been placed on administrative leave and has subsequently left the company.”
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