Securities regulators in Illinois are pressuring Bear Stearns to turn over documents that contain proof of market-timing improprieties, it was reported last week. Illinois sent a notice to the firm on Feb. 10 asking its executives to appear before a hearing on April 6 to fess up as to why they failed to respond to a subpoena the month before. The state threatened Bear with a penalty and/or revocation of its state license.

"We take non-responsiveness very seriously," Tanya Solov, director of the Illinois securities department, said. However, she added, Illinois expects Bear Stearns to comply. Elizabeth Ventura, a Bear Stearns spokeswoman, said the firm has already supplied Illinois with "thousands of pages of documents" and that it would willingly continue to supply it with additional records.

Marsh CEO Emphatically Denies Putnam For Sale

Marsh & McLennan CEO Michael Cherkasky emphatically denied during the company's earnings call last week that Putnam Investments is for sale. "It's not going to happen," he said adamantly.

Marsh, which reported a fourth-quarter loss of $676 million, is cutting its quarterly dividend in half and slashing up to 2,500 jobs to pay for settlements over allegations that its insurance brokerage unit rigged bids.

However, Cherkasky and company reportedly face considerable dissent from officials at Putnam who believe a breakaway would greatly help the firm, which saw clients withdraw roughly $105 billion in the 15 months since regulators unearthed illegal trading activities by its money managers. Putnam officials cite private ownership, which would help Putnam resurrect its customer base, as a top reason for a spinoff. They also say they don't want to be part of a parent company that is cleaning up its own mess.

Still, a breakaway poses risks for both Putnam and its parent company, Marsh. Putnam, if it were to be sold, would essentially be trading one owner for another because of the billions of dollars needed for a buyout. Marsh would need to foot an enormous tax bill to facilitate a breakoff, something that the company is unlikely to agree to do given the $850 million in restitution it already needs to fork over to policyholders hurt by bid-rigging practices. Marsh would also need to satisfy the parent company's shareholders and overcome Cherkasky's opposition to the sale.

Marsh executives expressed hope that Putnam's assets would begin to grow again in 2006. At the end of February, Putnam had $205 billion under management, down from $260 billion at the end of 2003. Ten of Putnam's 12 flagship funds performed above the median of their peer groups for the 12 months ended Jan. 31, 2005. Marsh said during its earnings call that it will pay another $80 million to Putnam investors hurt by the trading abuses of money managers.

SEC's BONY Funds Probe Pinpoints Distribution Costs

The Bank of New York revealed last week that the Securities and Exchange Commission is investigating marketing and distribution costs at its BNY Hamilton mutual fund family. Last fall, BONY first indicated that the government and self-regulatory agencies were investigating the bank over its potential failure as a stock transfer agent to find lost shareholders, along with its fund family's relationship to an unnamed fund administrator.

The SEC evidently is spearheading the investigation and has zeroed in on the appropriateness of the funds' marketing and distribution costs. The probe reportedly involves BONY, BNY Hamilton and a subsidiary of BISYS that acts both as the funds' administrator and underwriter.

NASD Tells Diversified It May Face Timing Charge

The NASD has notified Diversified Investors Securities Corp. (DISC), a subsidiary of Diversified Investment Advisors (DIA), of a preliminary determination to recommend disciplinary action against it over market timing.

The NASD told the firm on Feb. 18 that, in violation of its prospectus provisions, DISC allowed rapid in-and-out trading by some investors in its International Equity Fund between July 1, 2003 and Oct. 31, 2003. Although DISC and DIA have cooperated with regulators on requests for information, the NASD contends that DISC violated certain record retention rules relating to e-mail communications.

SEC Examining Funds for Class-Action Collections

The Securities and Exchange Commission is looking into whether mutual funds do their part to collect shareholders' money from class-action lawsuits, Lori Richards, director of the SEC's compliance inspections and examinations, said last week. Principally concerned with the methods investment advisors use to evaluate whether or not to file for a settlement, the Commission could reveal its findings in a month, she said, speaking at a mutual fund conference in Washington.

(c) 2005 Money Management Executive and SourceMedia, Inc. All Rights Reserved.

Subscribe Now

Access to premium content including in-depth coverage of mutual funds, hedge funds, 401(K)s, 529 plans, and more.

3-Week Free Trial

Insight and analysis into the management, marketing, operations and technology of the asset management industry.