Securities and Exchange Commission
has recommended an enforcement action against two of its mutual fund units for failing to disclose trading arrangements in prospectuses.
Fleet, which also
reported a near-tripling in fourth-quarter earnings Thursday, said its Columbia Management Advisors and Columbia Funds Distributor units received Wells notices from the SEC's Boston office saying a preliminary determination for enforcement has been made.
The company said regulators believe certain fund prospectuses didn't accurately disclose "certain trading activity in fund shares" related to a "limited number of trading arrangements," mostly by three entities in one international and two domestic funds.
The bank wasn't more specific, but the language is almost certainly shorthand for transactions in which hedge funds market-timed the funds, or made rapid trades in them in order to profit from price discrepancies among their components in different markets.
The strategy is legal but strongly discouraged because it dilutes the funds' value to long-term holders. Market-timing and its more sinister cousin, late trading, have been at the center of investigations by both the SEC and New York Attorney General Eliot Spitzer.
"We believe that the allegations relate to a limited number of trading arrangements occurring in the period 1998-2003," FleetBoston said in a release. "The majority of trades made pursuant to these arrangements were made by three entities and occurred in one international and two domestic funds. None of these arrangements is in existence today."
Fleet said the subsidiaries plan to discuss the matter with the SEC "in an effort to reach a satisfactory resolution."