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December 22, 2003 at 07:00 PM
Michael J. Sullivan, the U.S. attorney for Massachusetts, has convened a grand jury to investigate a broad array of trading abuses in the mutual fund industry, according to securities lawyers who have been informed of the probe.
The grand jury, active for more than a month, is looking at suspected trading abuses at the Boston office of Prudential Securities and a variety of issues involving market timing and late trading throughout the industry.
The investigation presents an opportunity to bring criminal charges in the growing national scandal, involving the unfair, lucrative trading of mutual funds by insiders and certain privileged clients.
“With all of the focus being on New York Attorney General Eliot Spitzer and Massachusetts Secretary of State William F. Galvin and the Securities and Exchange Commission, what is forgotten is the U.S. attorney is the only prosecutor with federal criminal jurisdiction,” said former federal prosecutor Jacob S. Frenkel, a partner at Smith Gambrell & Russell in Washington, D.C. “To the extent that there is securities fraud in the mutual fund activities, it’s squarely within his jurisdiction to prosecute it.”
Unlike the civil charges brought by the SEC, or administrative complaints filed by the secretary of state, U.S. prosecutors can bring criminal charges for which punishments include the possibility of jail time. Civil remedies typically include fines, censures, and in the extreme, a ban from the securities industry. Samantha Martin, a spokeswoman for Sullivan, said, “We can’t confirm or deny investigations.”
