Sign in to comment!

Menu
Home

Morgan Stanley to Pay $50M to Settle Mutual Fund Abuse Charges

Morgan Stanley (MDW) Monday agreed to pay $50 million to settle federal charges of mutual fund abuses as the industry scandal widened amid further withdrawals of funds by investors in Putnam Investments.

Morgan Stanley settled charges that it failed to tell investors about compensation received for selling certain mutual funds, the Securities and Exchange Commission (search) and National Association of Securities Dealers (search) said.

The deal followed an SEC settlement with Putnam on Thursday that it had allowed some portfolio managers and certain clients to break company rules by buying and selling mutual fund shares very quickly to profit from stale prices.

Without admitting or denying the charges, as is customary on Wall Street, Morgan Stanley agreed to provide more disclosure about its relationships with mutual fund groups, the SEC said, adding it was looking at 15 brokers in relation to the Morgan Stanley charges.

Morgan Stanley said in a statement it would no longer accept "soft dollar" payments -- the paying of brokerages services through commission revenues rather than direct fees, or hard dollar payments -- on retail sales of mutual funds.

The probe of the $7 trillion mutual fund industry will expand to include the examination of soft dollar payments and mutual fund fees, New York Attorney General Eliot Spitzer (search), who has spearheaded the investigations, said last week.

Putnam, the No. 5 U.S. mutual fund family, suffered $7 billion in outflows last week, down from $14 billion the prior week, said its parent, insurer Marsh & McLennan Cos. (MMC).

Putnam has seen its assets under management fall by close to 8 percent over the last two weeks to $256 billion. The Boston company has handled the withdrawals without increasing transaction costs, Marsh & McLennan said.

"Putnam has found that there has been sufficient liquidity in the market to manage the client withdrawals and redemptions without any increase in portfolio transactions costs," Marsh said.

Also on Monday, Alliance Capital Management LP (search) said it will delay filing its quarterly report to the SEC because of a $190 million charge it disclosed last week related to costs from an investigation into market timing of mutual funds.

Putnam ousted its longtime chief executive, Lawrence Lasser, in early November after federal and state regulators accused Putnam of securities fraud in connection with the widening probe into improper mutual fund trading.

The news led investors, including those responsible for the pension systems for public employees in several states, to withdrawal their funds from Putnam's management.

Putnam said it will reform its business practices and reimburse clients for any losses in a settlement with the SEC over improper trading last week, which prosecutors in New York and Massachusetts blasted as far too lenient.

Bear Stearns (BSC) fired four brokers and two assistants last week in a move related to mutual fund trading, The Wall Street Journal reported Monday, citing disciplinary records.

The Bear Stearns employees were suspended without pay on Oct. 24 and sacked on Wednesday, the report said.

Disciplinary records filed with securities regulators cite activities related to mutual fund trading, including market timing, as the reason for their terminations, the Journal said.

Calls to Bear Stearns seeking comment were not immediately returned on Monday.