NEW YORK (HedgeWorld.com)–New York State Attorney General Eliot Spitzer subpoenaed hedge fund manager Millennium Management LLC and mutual fund companies Vanguard Group and Invesco Funds Group in the widening inquiry into improper trading of mutual fund shares.
Mr. Spitzer previously revealed that Bank of America, Janus Capital Corp., Banc One, and Strong Capital Management may have facilitated after-hours and short-term timing trades by hedge fund manager Canary Capital Partners LLC in quid pro quo arrangements. Canary was allowed to trade after trading was supposed to cease and to move in and out of these stocks, practices prohibited by New York state and federal regulations or mutual fund prospectuses.
In return, the hedge fund made large “sticky money” investments in the mutual funds, helping push up their management revenue, and for instance in the Bank of America case provided business to the brokerage division of the bank.
These strategies were highly profitable for the hedge fund from 1999 to the beginning of 2003 at the expense of long-term mutual fund shareholders, the attorney general claims. Canary had assets of US$730 million in this strategy by 2002, but was liquidated in May 2003 Previous HedgeWorld Story.
Canary chief Edward Stern, son of real estate and pet food billionaire Leonard Stern, and his employees are providing evidence in the investigation as part of a settlement. Whether Millennium, known to do trades in mutual fund stocks, will also be accused of having stepped beyond the legal boundaries is to be seen.
A spokesman for Mr. Spitzer declined to give information about the new subpoenas and said that the investigation is continuing. His office has said that the inquiry will turn up much more evidence in the month to come and many mutual funds are involved .