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Report: U.S. probes Deutsche Bank
NEW YORK (Reuters) -- Deutsche Bank, Germany's largest bank, has become the latest target of the widening U.S. investigation into trading abuses in the mutual fund industry, a person familiar with the situation said. New York Attorney General Eliot Spitzer is investigating whether Deutsche Bank's U.S. arm helped investors make illegal after-market trades in mutual funds, the source said Tuesday. The probe could lead to either criminal or civil charges, but no immediate legal moves by Spitzer's office are expected, the source said. New York state has issued a subpoena asking for documentation about Deutsche Bank's trading practices, the source said. Deutsche Bank, in a statement, said it is one of at least 88 mutual fund complexes and 34 broker-dealers to receive information requests from regulators about fund practices, and said it is cooperating fully with such requests. "To our knowledge, no regulator has 'targeted' Deutsche Bank in these industry-wide inquiries,'' it said. Darren Dopp, a spokesman for the New York attorney general, could not be reached for comment immediately. Deutsche Bank, which has an asset management and brokerage unit, is suspected of having helped investors trade mutual funds after the market closed, the source said. It is also being looked at for helping investors profit from rapid trades in and out of the funds, a practice known as market timing. The Frankfurt-based bank is one of the largest financial services firms in the world. It has tried to build its U.S. retail investor business by buying mutual fund company Scudder Investments and entering into an alliance with INVESCO Funds Group. Other charges plannedSpitzer's office also plans to bring charges against other companies and individuals in coming weeks, according to sources familiar with the situation. As Reuters has reported in recent days, these could include Wisconsin mutual fund Strong Capital Management, its CEO Richard Strong, Phoenix-based retirement fund administrator Security Trust Co., its former CEO Grant Seeger, New York broker DC Capital LLC, and a DC Capital trader, Tariq Zahir. DC Capital referred calls to its lawyer, Ira Sorkin, who did not immediately return a phone call seeking comment. A spokesman for Strong Capital was not immediately reachable. STC spokeswoman Nancy Murphy would not comment specifically on whether the firm faced charges, but said STC's lawyers expected to meet with Spitzer's team on Thursday and that she "expected a satisfactory result.'' Thus far charges brought by Spitzer's team have focused mainly on trading that was done after the market closed, which is illegal if the shares are sold at the pre-market closing price. Charges from parallel probes made by the U.S. Securities and Exchange Commission and the state of Massachusetts have focused on market timing. Market timing is not illegal, although asset managers who discourage it in their funds' prospectuses can violate their fiduciary duties, or even violate securities fraud laws, if they permit other investors to engage in the practice. Brokers, funds under scrutinySpitzer's late-trading probe began with hedge funds that were profiting from the practice, but it quickly shifted to the brokerages and mutual fund companies that permitted investors to use the trading strategy. Other firms being looked at for late-trading include Bank of America, which allowed New Jersey hedge fund Canary Capital Partners LLC to trade after hours, according to a complaint filed by Spitzer as part of a $40 million settlement reached with Canary last month. One of Bank of America's brokers, Theodore Sihpol III, was charged with grand larceny and securities fraud in September, while Steve Markovitz, a former trader at hedge fund Millennium Partners LP, pleaded guilty to late trading last month. James Connelly Jr., a former vice-chairman for money manager Fred Alger Management, admitted to concealing evidence showing that hedge fund Veras Investment Partners traded Fred Alger funds after the market closed. As part of a plea agreement, Connelly Jr. admitted only to evidence tampering. The U.S. Securities and Exchange Commission and the state of Massachusetts filed civil charges against seven former employees of Prudential Securities for permitting market timing, as well as against Putnam Investments, a unit of Marsh & McLennan, and two former Putnam managers. Copyright 2003 Reuters. All rights reserved. This material may not be published, broadcast, rewritten, or redistributed.
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