NEW YORK (AP) – Mutual fund giant Franklin Resources Inc. says the trading activity at the center of charges recently filed by Massachusetts regulators harmed no one, and the mutual-fund company hasrejected at least $3 billion in assets from “market-timing” traders in recent years.<\/p>\n
Massachusetts Secretary of State William Galvin charged Franklin two weeks ago with fraud in an alleged scheme that allowed a wealthy investor to “market time” a Franklin mutual fund.<\/p>\n
Galvin charged that executives at Franklin and some of its subsidiaries allowed Las Vegas investor Daniel Calugar to rapidly trade in and out of the Franklin Small Mid-Cap Growth Fund to take advantage of discrepancies between the price of its shares and the value of its holdings. In exchange, Calugar made a long-term investment in a new Franklin hedge fund, Galvin alleged.<\/p>\n
In its answer Tuesday to Galvin’s complaint, Franklin said Calugar made three round-trip exchanges of about $20 million in and out of Franklin Small Mid-Cap in September and October of 2001, resulting in a $700,000 net loss.<\/p>\n
“The fund and its shareholders were not harmed,” the San Mateo, Calif., fund firm said.<\/p>\n
Franklin said the fund had no pricing inefficiencies for Calugar to exploit. Also, his $20 million investment represented a “minute fraction” of the fund’s $8 billion in net assets. The fund’s typical cash position was $1.8 billion.<\/p>\n
The firm said its willingness to allow Calugar to trade in the fund was based on the fund manger’s assessment that the activity would not have a material effect on the fund, and he was “being open about his intended trading … as opposed to many traders who sought to hide their trading patterns and evade detection.”<\/p>\n
Greg Johnson, currently Franklin’s co-chief executive, ultimately allowed Calugar to trade in the Small Mid-Cap fund after confirming with the portfolio manager that it would not be disruptive, and on the condition that Calugar not exceed agreed-upon trade limits.<\/p>\n
While those limits appear to be above guidelines in the fund’s prospectus, Johnson “never had any intent to allow Calugar to invest contrary to his understanding” of what the prospectus allowed, the response said.<\/p>\n
The answer to the Massachusetts complaint goes on to say that the firm has instituted a program to thwart market timing, and has “rejected at least $3 billion of abusive market timing investments,” since the fall of 2000, including additional overtures by Calugar.<\/p>\n
Also on Tuesday, Franklin Resources said it’s facing numerous lawsuits in federal and state courts regarding trading activities.<\/p>\n
Franklin – the parent company of Franklin Templeton Investments – said in a Securities and Exchange Commission filing that it has been notified this month of purported class-action lawsuits filed in federal courts in Nevada, California and Florida.<\/p>\n
In Illinois, the company’s subsidiaries face six lawsuits filed in federal and state courts, the filing said.<\/p>\n
In addition, West Virginia’s attorney general and securities commissioner also are investigating the company’s the company’s trading practices.<\/p>\n
Franklin has previously said that besides Massachusetts, regulators in California, Florida and New York are investigating.<\/p>\n","protected":false},"excerpt":{"rendered":"
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