Bank One Mutual Fund Chief Quits - TheStreet

The mutual fund trading scandal claimed another casualty Wednesday when the head of

Bank One's

(ONE) - Get Report

mutual fund division resigned.

The resignation of Mark Beeson from the One Group, the Chicago-based bank's family of mutual funds, comes amid an internal investigation by the parent over its alleged involvement in unusual trading activity with a New Jersey hedge fund.

The shake-up at Bank One comes some six weeks after New York Attorney General Eliot Spitzer shocked the mutual fund industry with allegations of illegal and irregular trading activity involving hedge funds and some mutual funds. Bank One was one of several financial firms implicated by Spitzer's office in the growing scandal.

Beeson had been president of the One Group. His resignation was confirmed in a series of internal memos, including one from Bank One Chief Executive Jamie Dimon, who tapped David Kundert, chief executive for investment management at Bank One, to step in as president of the One Group.

Also out at Bank One is John AbuNassar, head of the bank's institutional asset-management group.

The internal bank memos, copies of which were released by Bank One, suggest that the two former executives left the company under pressure. In the memos, Dimon said the bank's investigation is continuing, but so far has not found any evidence that its One Group mutual fund customers were harmed by the improper trading activity.

"We continue to work to determine whether One Group investors were financially harmed by this trading -- and if they were, we will make full restitution," said Dimon in a memo, which he said employees should feel free to share with Bank One customers.

The resignations at Bank One are just the latest in a series of firings and forced resignations on Wall Street, as ripples from the mutual fund trading scandal spread. Other financial services firms that have fired or pushed out brokers and executives include

Bank of America

(BAC) - Get Report

,

Merrill Lynch

(MER)

,

Citigroup

(C) - Get Report

and

Fred Alger Management

.

The mutual fund scandal first made headlines in early September when Spitzer's office filed a civil complaint alleging that

Canary Capital Partners

, a New Jersey hedge fund, had engaged in improper trading in shares of mutual funds sold by at Bank One,

Janus

(JNS)

, Bank of America and

Strong

. In filing the complaint, Spitzer didn't bring charges against the fund families, but reached a $40 million settlement with Canary.

Two weeks ago, the investigation netted its first criminal conviction, when a former trader with

Millennium Partners

, a $3 billion hedge fund, pleaded guilty to allegations of engaging in illegal "late trading'' of mutual fund shares. Spitzer's office also has filed criminal charges against a former Bank of America broker, who allegedly permitted the Canary hedge fund to late trade in shares of the bank's mutual fund offerings.

Late trading is the most serious allegation being investigated by Spitzer. It is an illegal activity in which favored customers are allowed to buy mutual funds that were priced prior to the release of market-moving news.

Spitzer also is looking into allegations of market-timing -- an arbitrage strategy that allows savvy traders to take advantage of the time differences between the closing of the U.S. markets and foreign exchanges. Market-timing is largely legal. It becomes an issue only when a mutual fund that vows to prohibit market-timing violates its own rules and permits hedge funds and other investors to engage in it.

So far, the only allegations leveled against Bank One involve accusations of market-timing. Dimon, in his memo, said the bank's internal investigation has not found any instances of illegal late-day trading in One Group mutual funds. Spitzer's office only has accused BofA of permitting hedge funds to engage in illegal late-day trading.

"We found no evidence Bank One or Bank One employees making the type of after-market trading arrangements that have been alleged of other institutions,'' Dimon said.

In the memo, Dimon said the bank severed its relationship with Canary in May. The internal investigation has found that over an 11-month period, Canary was given permission to trade shares of 11 mutual funds more frequently than other One Group customers.

"We regret that Canary was given special treatment,'' said Dimon.

Bank One also has ended its relationship with

Security Trust

, an Arizona brokerage firm that it used to process some of its mutual fund trades. Security Trust also was identified in the Canary complaint as permitting the hedge fund to engage in improper trading. Security Trust allegedly had a deal with Canary that enabled it to trade shares in hundreds of mutual funds. In exchange, Security Trust allegedly received a cut of Canary's illicit profits.