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News and Press Releases |
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HEADLINE:
In-House Counsel - Mutual Funds - Securities Lawyers Are Swamped - Investigations Have Lead To An Abundance Of Work For Top Counsel
By: Sue Reisinger -- Special to The National Law Journal
The National Law Journal. November 17, 2003
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EXCERPT: WHAT'S BAD FOR mutual fund companies may be good for lawyers' business. Securities lawyers say the number of mutual funds under investigation is growing so fast that they are overwhelmed with calls for advice or requests to represent clients. "There never has been a situation where such an unprecedented number of regulators are throwing this many resources" at a securities problem, said a Washington attorney who asked not to be named but who represents three mutual fund companies under investigation. This attorney and others said their firms were swamped with requests for help. "This is the new wave of market regulatory issues and we are very busy," said securities lawyer Beth I.Z. Boland, a partner at Bingham McCutchen in Boston. "It started with Eliot Spitzer's initial salvo, then came a flurry of enforcement actions, followed by shareholder lawsuits." Spitzer is the New York attorney general. Boland represents Prudential Securities, now part of Wachovia Corp., which has six former employees facing civil charges in Boston for improper trading. She declined to comment on the case. Wachovia/Prudential has not been cited, but the company still faces regulators' questions concerning whether it condoned the trading, or should have had tighter controls in place to avoid it. Pete Michaels, a partner and securities attorney at Boston-based Murphy & Michaels, represents Wachovia/Prudential in Massachusetts. "In my 15 years in this business I have not seen a time when so many regulators were involved in any one case at the same time," Michaels said, adding that he has been dealing with the U.S. Securities and Exchange Commission (SEC), the Massachusetts Securities Division, the state attorneys general for Massachusetts and New York and the National Association of Securities Dealers, among others. The mutual fund snowball began in September when Spitzer in New York filed a 44-page complaint alleging that several mutual fund firms allowed a hedge fund called Canary Capital Partners to book millions of dollars in profits through improper timing of trades. Improper market timing includes the frequent trading of shares to take advantage of pricing inefficiencies and "late trading"-- placing orders after the 4 p.m. market closing time. Defense attorney Gary P. Naftalis, a partner and co-chairman of the New York firm of Kramer Levin Naftalis & Frankel, represents Canary and its principal manager, Edward Stern. Naftalis declined general comment on the case, but did note that his client chose to settle the state case quickly, paying $30 million in restitution and $10 million in penalties. The company still must deal with shareholder suits, he added. Such settlements do not sit well with defense attorneys like William Nortman, a shareholder in Akerman Senterfitt's Fort Lauderdale, Fla., office. Nortman represents two former employees of Kaplan & Co., a Boca Raton, Fla., firm named in Spitzer's complaint as having worked with Canary on improper trades. "Spitzer is taking a hard-line view on timed trading, something that was a widely accepted practice," Nortman said. "But the companies will resolve it by settling because the stakes are so high. They can't chance losing their licenses." That leaves individual employees, like Nortman's clients, struggling to prove their innocence.
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