The former CFO and Treasurer of Legg Mason's fixed income funds has been barred from the securities industry for altering books and records of one of the funds. Frances Guggino was also ordered by the SEC to pay a civil penalty of $15,000.

Guggino resigned in June 2010 during the course of an internal investigation that revealed the document alteration, which appears to have been motivated by a desire to cover up a mistake.

The episode revolved around the distribution of disgorgement-related portions of a fair fund connected to proceedings involving violations of the federal securities laws by Smith Barney and Citigroup. Citigroup sold its asset management business to Legg Mason in 2005 and Smith Barney was replaced as investment manager by Legg Mason the following year. Legg Mason then assumed responsibility for the distribution.

The original violation involved mutual funds from the Smith Barney Family of Funds that engaged Citicorp Trust Bank as their transfer agent. The SEC found in 2005 that Smith Barney placed its interest in making a profit ahead of the interests of the funds it served in recommending the transfer agent.

According to the plan of distribution, in cases where the mutual funds entitled to a distribution were liquidated, Legg Mason was to advance the money owed to those funds prior to their liquidation. Therefore, under the plan, a portion of the distribution was to go to Legg Mason to reimburse it for those advancements.  The custodian bank of the liquidated funds was required to provide a confirmation that the advancements had actually been received by those funds, and the commission staff received what purported to be that confirmation through Legg Mason's counsel on April 15, 2010.

However, the SEC staff learned shortly thereafter that despite that confirmation, not all the advancements had been made. Specifically, two subsequently liquidated funds, the Legg Mason Partners Capital Preservation II Fund and the Legg Mason Partners Variable Government Portfolio should have received advance payments but did not.

The SEC staff learned on June 4, 2010 that the custodian bank confirmation that it had received had been fabricated by Guggino. Guggino was the person at Legg Mason responsible for ensuring that the advances were made to the funds before liquidation, but in the case of the two funds she failed to do so. Legg Mason never made the advance payments of approximately $600,000 to the Capital Preservation II Fund and approximately $16,000 to the Variable Government Fund as required by the plan. Guggino covered up her mistake with the fabricated confirmation. And in the course of her attempts to persuade Legg Mason finance department personnel that the advancement to the Capital Preservation II Fund had been made, she fabricated multiple documents including emails and a copy of the fund's trial balance.

The action was first reported by

Register or login for access to this item and much more

All Financial Planning content is archived after seven days.

Community members receive:
  • All recent and archived articles
  • Conference offers and updates
  • A full menu of enewsletter options
  • Web seminars, white papers, ebooks

Don't have an account? Register for Free Unlimited Access