Skandia Drops Three Scandal-Touched Firms

April 8, 2004 ( - American Skandia Inc. plans to dump three money management firms caught up in the mutual fund trading scandal that currently handle funds for Skandia's variable annuities.

Skandia said it plans to drop Invesco, Federated Investor and Pilgrim Baxter Associates by the end of the month and replace them with State Street Research, Goldman Sachs Asset Management and Hotchkiss & Wiley as managers of several growth-oriented mutual funds, the Hartford Courant reported.

Many life insurers – including American Skandia – are under investigation for allowing market timers to operate in their variable annuities. Variable annuities are tax-deferred retirement savings contracts that blend mutual funds and life insurance features.

The U.S. Securities and Exchange Commission (SEC) and the New York State attorney general’s office are looking into charges that Invesco, Federated Investor and Pilgrim Baxter allowed large clients to make market time their funds. The wide-ranging industry probe has also focused on late trading and certain sales practices.

Skandia’s move was hardly unprecedented. Several variable annuity companies in recent months have opted to change fund-management companies that have been tainted by the scandal.