- The Washington Times - Tuesday, November 4, 2003


More firms are likely to be charged in the burgeoning scandal surrounding the mutual fund industry, the head of the Securities and Exchange Commission’s enforcement division told Congress yesterday.

Stephen Cutler, testifying about the wide-ranging investigations into the management of the $7 trillion mutual fund business, said the SEC plans to send notification to some firms this week that its investigators intend to file charges.

Mr. Cutler spoke as the scandal struck Prudential Securities Inc., with the SEC and Massachusetts securities regulators filing civil charges of improper trading against former brokers and branch managers at the company’s Boston office. The regulators contends that the brokers used several means, including false identities, to disguise rapid in-and-out trading in mutual funds to enrich themselves and the hedge funds whose money they were investing.

The move followed the announcement Monday that Lawrence J. Lasser, the chief executive of Boston-based Putnam Investments, was stepping down in the wake of the filing of civil fraud charges against the nation’s fifth-largest mutual fund company.

Mr. Cutler said the SEC had already sent notification to one firm regarding potential abuses, and said more than 100 others were being scrutinized to determine whether they gave the proper volume discounts to customers.

He did not name any of the companies.

Mr. Cutler’s remarks came in testimony before the House Financial Services subcommittee on capital markets, insurance and government-sponsored enterprises, which also heard testimony from New York Attorney General Eliot Spitzer. He has started several investigations into misdeeds on Wall Street.

Mr. Spitzer argued that the compliance departments at many of the mutual firms should be overhauled because they have proven ineffective.

“They have utterly betrayed the American public,” Mr. Spitzer said.

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