Citing New York State Attorney General Eliot Spitzer's charges against Canary Capital Partners and his related investigation into Janus, Bank of America's Nations Funds, Bank One and Strong, Morningstar has suspended its recommendation on the four families' funds indefinitely. Furthermore, Morningstar is urging investors to consider selling their shares in these funds. However, Morningstar said the funds will still qualify for its top "star" ratings, should they deliver performance that merits them.
"Spitzer has indicated that he is at the beginning of his investigation of the fund industry, but in our opinion, the evidence he has presented already is sufficiently damning for those implicated in his complaint," said Morningstar Analyst Brian Portnoy, in a piece posted on Morningstar's Web site.
Portnoy is particularly disgusted with Janus' decision to allow hedge fund Canary to market time several of its funds - all to receive fees and boost sagging assets. Portnoy says he is further galled by the fact that the firm's research director stated publicly that when the market began to sink, Janus didn't have any other good ideas outside of the narrow list of technology stocks it had heavily invested in. Further, he notes, Janus was the biggest shareholder of Enron.
"We think Spitzer's allegations of trading misdeeds at Bank of America, Janus, Strong and Bank One should prompt investors to consider selling their stakes in funds run by those firms," Portnoy concluded.
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