Franklin Resources

(BEN) - Get Report

, the fourth-largest mutual fund company in the U.S. with $302 billion in assets, said Monday that it has put three employees on administrative leave for market-timing Franklin funds.

Franklin Resources, which offers investment products under the Franklin Templeton brand as well as the Mutual Series, Bissett and Fiduciary brand names, said in a filing with the

Securities and Exchange Commission

that it has "identified some instances of frequent trading in shares of certain funds by a few current or former employees in their personal 401(k) plan accounts."

The employees placed on administrative leave include an officer of a Franklin subsidiary. Another officer and a trader were suspended for improper trading in their 401(k) plans. No names were released, and the company didn't disclose the names of the funds in which the improper trading occurred. The disciplinary action is pending the completion of an internal investigation.

The company says it has "found no instances of inappropriate mutual fund trading" by any portfolio manager, investment analyst or officer of Franklin Resources.

The San Mateo, Calif.-based Franklin Resources is only the latest in the aggressive investigation into the mutual fund industry. New York Attorney General Eliot Spitzer launched the initial probe in September; the SEC and state of Massachusetts also are examining the issues, which lately have centered on the practice of market-timing.

Market-timing -- the quick, in-and-out trading executed to take advantage of stale pricing in mutual funds -- isn't explicitly illegal, but funds that allow or encourage it can be charged with a breach of fiduciary duty.

The SEC, the U.S. attorney for the Northern District of California, U.S. attorney for the Northern District of Massachusetts and New York state attorney general have subpoenaed Franklin documents and employees. Franklin has hired independent outside counsel to review the allegations of improper trading. Franklin's investigation is ongoing, according to spokesperson Lisa Gallegos.

Insiders at Franklin have been increasingly selling their employer's stock over the past few months, according to Michael Painchaud, director of research and principal at Market Profile Theorems, a firm that tracks insider activity.

As of Nov. 1, Franklin had scored the lowest-possible mark on Painchaud's proprietary insider trading model, suggesting a high level of bearishness within the firm. Painchaud assigns a score to companies he tracks based on seven factors, the most important of which is whether an insider actually bought or sold shares. (For more details, see

Franklin Resources' Insider Moves Turn Bearish.)

Franklin shares closed down 40 cents, to $50.70, on Monday.