Franklin Resources was hit yesterday with fraud charges, as Massachusetts Secretary of the Commonwealth William Galvin charged the firm with harming long-term investors by allowing Las Vegas broker Daniel Calugar to market time the fund.
Calugar is alleged to have invested $10 million in one of Franklins funds in exchange for market timing other funds, and in the process, he earned $45 million in profits, at the expense of long-term shareholders.
"We have an outrageous example of a company requiring a quid pro quo, basically a legal bribe, to be market timed," Galvin told the New York Post. "Its truly outrageous that we have a company being the beneficiary of the market timing," he added.
Franklin issued a statement yesterday noting that only a single investor made only three round-trip investments in the Franklin Small Cap Growth Fund I, now known as Franklin Small-Mid Cap Growth Fund. The company said that none of its investors was harmed by Calugars actions.