The mutual fund arm of
became the latest financial-services firm to be charged by regulators with allowing wealthy investors to engage in improper trading.
Securities and Exchange Commission
and New York state regulators, in separate actions, charged that Fleet's Columbia Funds unit permitted at least nine hedge funds and wealthy individuals to market-time shares of its mutual funds from 1998 through 2003. Regulators filed civil fraud charges against Columbia.
In many cases, regulators allege that officials at Columbia negotiated agreements with a select group of customers that let them make frequent trades in 16 different funds, including the
Newport Tiger Fund
Acorn International Fund
Stein-Roe International Fund
. In return, the favored investors sunk money, or "sticky assets,'' into other funds offered by Columbia.
That kind of trading isn't illegal but is supposed to be discouraged by most funds because of its costliness to ordinary investors.
Columbia joins a long list of mutual fund companies that regulators have found willingly opened their doors to a select group of market-timers. An attorney for Columbia could not be reached for comment.
"By putting their own financial interest ahead of their clients' interest, this investment adviser and broker-dealer violated their most basic duties and violated the trust that mutual fund shareholders placed in them,'' said SEC Director of Enforcement Stephen Cutler.
Regulators have not alleged that Columbia permitted any of the investors to engage in late trading -- a more serious offense. But a law enforcement source said regulators believe that some of the investors also may have late traded some of the funds.
In late trading, an investor gets to buy shares of a mutual fund after the release of market-moving news, but before the impact of that news can be factored into the price.
The cast of characters with whom Columbia allegedly did its sordid business includes some familiar ones to the mutual fund trading scandal, including
Canary Capital Partners
Ritchie Capital Management
and Las Vegas broker and attorney Daniel Calugar. So far, the Canary hedge fund and Calugar have emerged as two of the most prolific market-timers in the wide-ranging investigation.
But the action against Columbia also reveals some new players in the investigation. Regulators allege that one of Columbia's most significant market-timing deals was with a little-known San Francisco-based hedge called
In addition, Columbia reached market-timing arrangements with two individuals, Alan Waldbaum and Sal Giacalone. The mutual fund company even had deals with two investment advisory firms, D.R. Loser and Signalert, to engage in market-timing.