Fund Times: Columbia, Nations Settle with Regulators

The parents of Nations Funds and Columbia Funds this week promised to pay a total of $675 million in fines and fee cuts to settle abusive trading charges with state and federal authorities. Parent companies  Bank of America (BAC) and  FleetBoston Financial  are set to merge in April, so they negotiated a joint settlement.

Nations was one of the shops that ignited the fund scandal in September 2003 when New York Attorney General Eliot Spitzer accused the firm of permitting late-trading by hedge fund Canary Capital. The settlement brought yet another disturbing charge against Nations: Spitzer alleged that the fund boards themselves had signed off on special market-timing arrangements. Interestingly, it was the fund boards that were leading Nations' internal investigation. Because of that alleged misconduct, Spitzer required Nations to clear out all the old board members within 12 months.

In February, both the SEC and New York attorney general accused Columbia of permitting at least nine clients to market-time 15 Columbia mutual funds. Much of this market-timing was done under secret arrangements approved by Columbia's distribution arm or the fund managers, and the complaints alleged that the distribution arm actively thwarted attempts to reduce or eliminate the market-timing.

Both the Nations and Columbia families agreed to cut their fund fees by $80 million over the next five years. The firms haven't yet said which funds will have their fees cut. Nations also agreed to pay $250 million in disgorgement and restitution to shareholders, and $125 million in fines, according to the settlement.

Columbia Advisors (the family's money-management arm) and Columbia Distributors (its distribution arm) will together pay $70 million in restitution and damages for investors harmed by the market-timing activities, plus $70 million in civil penalties. They also agreed to cease any violations of securities laws and implement changes in governance and compliance to prevent future violations.

In addition, Columbia Management Group fired co-presidents James Tambone and Louis Tasiopoulos, as well as chief operating officer Joseph Palombo on Wednesday.

The settlements are good news for shareholders, though it will be hard for us to work up much enthusiasm for Nations Funds as long as some of the old-guard directors are manning the controls.

Janus Names New Investment Chief
 Janus Capital Group  has hired former  Goldman Sachs (GS) executive Gary Black as its chief investment officer and president, ending a nearly year-long search for a replacement for former CIO Helen Young Hayes.

Although Black's profile is not high enough to give Janus instant cachet, he does bring a strong resume. Black had been chief investment officer for Goldman Sachs Asset Management's Global Equity division. Before that, he cut his teeth as a tobacco and beverages analyst for Sanford C. Bernstein & Co.

Both Janus and Goldman have multiple research groups that operate autonomously, so Black's experience in managing distinct groups under one umbrella should come in handy. Janus' in-house funds are most familiar to investors, but the firm also includes value funds run by Perkins, Wolf, McDonnell & Co., and new quantitatively managed offerings from INTECH.

Black won't lack for challenges at Janus. The firm is still trying to repair its image and stem asset outflows in the wake of the market-timing scandal. No doubt a settlement is at the top of his agenda.

Manager retention also is a key issue. Last year, Janus scrambled to replace three high-profile portfolio managers who left the firm. Most importantly, though, Black must improve performance.

Feds Say Vice Fund Advisor Lacks Virtue
Federal prosecutors filed criminal charges against three Dallas brokerage executives for allegedly helping market-timers sneak into mutual funds. The U.S. attorney in Manhattan said Mutuals.com CEO Richard A. Sapio, president Eric McDonald, and compliance officer Michele Leftwich conspired to commit securities fraud.

The executives allegedly helped hedge funds and other investors who wanted to market-time circumvent mutual funds' defenses against the practice by using multiple account numbers and concealing trades by funneling them through other affiliated brokers. Mutuals.com said all three executives, who also face a civil lawsuit filed by the SEC last year, had resigned their posts but planned to fight the charges. Mutuals.com advises and sells the socially incorrect Vice Fund (VICEX), which focuses on stocks in sin industries such as tobacco, alcohol, gambling, and weapons.

Buffett-Led Group Buys Safeco Funds
Warren Buffett, an outspoken critic of how mutual funds are run, now has a chance to put his money where his mouth is.

Buffett's  Berkshire Hathaway (BRK.B) in March became an owner of a mutual fund advisor after it bought the life insurance and asset management business of Safeco Corp. for $1.35 billion with an investment group that included  White Mountains Insurance  (WTM).

The Safeco Fund Family includes about 14 stock and bond funds with about $2.5 billion in assets.

Etc.
The $325 million  Buffalo High-Yield  (BUFHX) temporarily stopped accepting new purchases through broker dealers on March 19. Buffalo said its board decided to close the fund "because of the unusual market environment for high yield bonds." Essentially, fund manager Kent Gasaway doesn't think high-yield bonds offer an attractive enough risk/reward profile due to historically low interest rates and slim corporate bond yield spreads, according to an SEC filing. At the start of the year, the fund had nearly 40% of its assets in cash.

GE Institutional Mid-Cap Value , which has $18 million in assets, and $22 million GE Premier Value Equity , will be closed to new investments effective March 29. The funds will be liquidated and their assets distributed on a pro rata basis to shareholders on or around May 26.

Four new managers joined the team running  Credit Suisse Emerging Growth , according to an SEC filing. Marian Pardo, Calvin Chung, Allen R. Margolius, and Leo M. Bernstein joined Robert S. Janis in the Credit Suisse Small/Mid-Cap Growth Team, which is responsible for the day-to-day management of the fund. Roger M. Harris, Sammy Oh, and John P. Rhodes are no longer members of the team. On May 1, Credit Suisse Emerging Growth will change its name to Credit Suisse Mid-Cap Growth Fund.

Heartland Advisors said it added three new managers to the team that manages  Heartland Select Value . Hugh F. Denison, David C. Fondrie, and Theodore D. Baszler join Eric J. Miller and Gerald Sandel, who have run the fund since September 1999. Sandel, however, will leave the fund and its advisor on April 30 to pursue other opportunities, according to an SEC filing.

American Century launched a new broker-sold growth fund, American Century Capital Growth, run by the same team that runs the no-load  American Century Growth (TWCGX).

Barr Rosenberg filed plans to launch the Laudus Rosenberg Large Capitalization Value Fund. Depending on which share class investors choose, proposed expenses range from 0.99% to 1.39%. There will be a 2% redemption fee on shares redeemed within 30 days of purchase. The fund will be advised by Charles Schwab Investment Management Inc. and subadvised by AXA Rosenberg Investment Management LLC. The management team will consist of Kenneth Reid, William Ricks, and Thomas Mead.

Pioneer Funds filed plans to launch the Pioneer Select Value Fund. Depending on which share class investors choose, proposed expenses range from 1.25% to 2.00%. J. Rodman Wright and a team of assistant portfolio managers will run the fund.

Chicago-based  Nuveen Investments  revealed this week that it has received requests for information from the SEC on four occasions, the Chicago Sun-Times reported. Further, according to news reports, Nuveen said it has found evidence that some shareholders "traded more frequently than appropriate."

At-a-Glance Scandal Coverage
As the mutual fund trading scandal spreads in breadth and depth, it's become more difficult for investors to stay on top of every detail and the latest news. So we've compiled all the pertinent information in one table, offering you a family-by-family index outlining regulators' charges and settlements (if any), fund company statements, our recommendations, and links to more in-depth coverage. Click here to see if your fund family has been implicated and get the latest developments.