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Noted Manager Accused of Insider Trading

Plus, Ohio 529 sends Putnam packing, gives nod to BlackRock, and more.

Morningstar Analysts, 05/17/2010

The SEC has filed a complaint against former Schroder Municipal Bond Fund and Schroder Short-Term Municipal Bond Fund (both now liquidated) manager David Baldt alleging that he tipped off family members to redeem their shares in a fund he managed while he knew of adverse, non-pubic information about that fund. According to the complaint, several of these family members had invested the bulk of their life savings in the Short-Term Fund.

The complaint says that Baldt's funds were experiencing increased redemption requests in September 2008. During that time, according to the complaint, a family member called Baldt seeking his advice about what to do with her investment in the fund, and he advised her to sell her investment and put the money in Treasuries if she was having trouble sleeping at night.

At the end of September, redemptions for the funds were increasing, and Schroders management advised Baldt--a 1997 Morningstar Manager of the Year (he was at Morgan Grenfell at the time)--to sell enough securities to maintain a 10%-12% cash cushion in each fund, according to the complaint. On Sept. 30, the complaint says, Baldt responded to management arguing that the sales would "cause large unit price declines, which would lead to added redemptions, further sales, and 'snowballing poor investment performance,'" but management continued to insist on the sales. The complaint states that "During the remainder of that week, Baldt's portfolio team struggled to meet redemption requests and build the required cash cushion."

The complaint says that during the late afternoon of October 3, 2008, Baldt spoke again with the family member who had consulted him earlier, and he allegedly brought up her investment in the Short-Term Fund, saying that she "really should consider [her] inclination to sell." She confirmed she had already started selling after their first conversation, and Baldt emphasized that she should "go the full route," according to the complaint. This family member then allegedly conveyed the information to other family members, who began to redeem shares the following Monday.

Citing a Schroders statement, Ignites reported that Schroders discovered Baldt's actions and launched an internal investigation, which subsequently found him in violation of the firm's code of ethics; Schroders then relieved him of portfolio management duties, and reported him to the SEC.

Ohio 529 Reshuffle
The Ohio Tuition Trust Authority, the state agency administering Ohio's CollegeAdvantage 529 Savings Plan, Thursday announced that the Ohio 529 advisor plan will no longer offer an advisor plan management by Putnam Investments as of this fall. Putnam Investments has been the program manager for the Ohio advisor plan since October 2000.

Ohio's CollegeAdvantage Program offers two advisor plans managed by Putnam Investments and BlackRock, respectively. The Tuition Trust Board voted to retain BlackRock as the exclusive program manager. BlackRock is the world's largest investment management firm with over $3.4 trillion in assets under management.

Ohio's advisor-sold 529 plan is the seventh largest in the nation with over $3.5 billion in assets.

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