Regulators to Expand Fund Probe:
Spitzer Says Targets to Include Institutions Bankrolling Illegal Trades
By Brooke A. Masters
Washington Post Staff Writer
Friday, January 9, 2004; Page E01
The sprawling mutual fund investigation will soon target financial institutions that helped bankroll illegal trading by hedge funds and other big investors, New York Attorney General Eliot L. Spitzer and federal regulators said yesterday.
Since September, Spitzer and the Securities and Exchange Commission have brought legal actions against half a dozen fund companies and brokerage firms for improperly allowing big clients or insiders to engage in 'market timing,' a predatory practice that allows short-term traders to profit at the expense of long-term mutual fund investors.
Now regulators are training their sights on 'the financing of these trading patterns,' Spitzer told a gathering of Washington Post editors and reporters.
He would not discuss specific targets, but sources familiar with the investigation said the SEC and Spitzer are examining Bank of America and a handful of other major financial institutions in Canada and the United States. The first cases are likely to be brought in the next two months, the sources said.
SEC enforcement chief Stephen M. Cutler also would not name targets, but he likened this phase of the investigation to cases brought against several major banks for allegedly helping Enron Corp. make earnings look better by disguising the true nature of financial transactions."