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Two Top Bank One Executives Ousted amid Canary Fal

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CHICAGO (–The head of Bank One Corp.’s One Group mutual fund division and its head of institutional asset management both resigned Wednesday amid the bank’s internal investigation into its role in allowing hedge fund Canary Capital Partners LLC, Secaucus, N.J., to trade One Group mutual fund shares after hours and engage in market timing .

In a memo to Bank One employees released Wednesday, Bank One Chairman Jamie Dimon wrote that Bank One had fired its administrator, Security Trust Co., Phoenix, Ariz., in connection with that company’s role in helping Canary trade One Group mutual fund shares.

Mr. Dimon also said he had asked David J. Kundert, president and chief executive of Bank One Investment Advisors, to replace Mark A. Beeson as One Group president.

Mr. Beeson in September was named in a complaint by New York State Attorney General Eliot Spitzer alleging Mr. Beeson and One Group struck a deal with Canary in March 2002 to allow the hedge fund to engage in timing trading and late trading of One Group mutual fund shares. In the complaint, Mr. Spitzer alleged Mr. Beeson facilitated the deal and that Security Trust Co. introduced Canary officials to Mr. Beeson.

The complaint alleged that Canary was given special access to trade One Group fund shares in violation of Bank One’s policies. Bank One even provided a high-interest US$15 million loan to Canary in order to set up a special trading vehicle that Canary would use to trade One Group mutual fund shares. In exchange, Canary officials agreed to consider investing in a Bank One hedge fund.

In early 2003, Mr. Beeson requested that Canary stop timing One Group’s international mutual funds because he was “uncomfortable continuing to waive the redemption fees” required by One Group’s mutual fund prospectuses.

Additionally, Mr. Beeson told Canary officials that One Group mutual fund managers were “complaining to him [Mr. Beeson] about the effects of Canary’s timing activity,” according to Mr. Spitzer’s complaint. Mr. Beeson asked if Canary officials could reduce the frequency of their trading in exchange for allowing the hedge fund to time trades with four new One Group mutual funds.

Mr. Beeson also asked that Canary make the investment in the Bank One hedge fund, which Canary declined to do, according to Mr. Spitzer’s complaint.

By May of 2003, the relationship between Canary and Bank One had been strained to the point where Canary stopped trading One Group fund shares.

In his complaint, Mr. Spitzer also alleged that Canary engaged in market timing and late trading of shares of mutual funds managed by Bank of America Corp., Charlotte, N.C.; Janus Capital Group Inc., Denver, Colo.; and Strong Financial Corp., Menomonee Falls, Wis.

Canary in September agreed to pay US$30 million in restitution and a US$10 million penalty to settle the case.

Also in September, Mr. Dimon sent a memo to employees saying Bank One was cooperating with Mr. Spitzer’s office and launching its own query into its policies and possible role.

In a memo on Wednesday, Mr. Dimon said the bank’s investigation revealed that Canary was given permission to trade shares of 11 One Group mutual funds “more frequently than other customers.”

“We regret that Canary was given special treatment,” Mr. Dimon wrote. “It should not have happened.”

Mr. Dimon also said Bank One’s contract with Security Trust Co. said that Security Trust only could process trades in One Group shares that it received prior to market closing. Following on Mr. Spitzer’s complaint, Bank One asked Security Trust if it followed those procedures, a question Security Trust officials could not answer. So Bank One fired the company.

Also on Wednesday, Mr. Kundert said John AbuNassar had resigned as head of Bank One’s institutional asset management group. He will be replaced by Norm Cook, a managing director in that group.

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