Friday, March 31, 2006

Mutual Funds as Lead Plaintiffs (Part III)

Two anonymous readers have added their two cents to the topic, though the net result is actually a subtraction from the list and some "color" regarding one of the other entities on the list.

First, the subtraction. A reader has pointed out that the Provident funds appointed as lead plaintiff in the ECI Telecom litigation are not in fact mutual funds, but are instead pension funds, as described here. I hereby take them off the list, but beg and plead for a reader to send in a replacement entry, so I don't have to renumber the whole list.

Now for the color. Another reader has pointed out that various entities related to the Gintel Fund (which was named as a co-lead plaintiff in the Milestone Scientific litigation along with several of those entities) consented with the SEC in 2002 to the entry of a cease-and desist order.

The crux of the SEC's complaint is that from 1997 through 1999, Gintel Asset Management, Inc. (investment advisor to the fund), Gintel & Co. LLC (broker-dealer for the fund), and Robert M. Gintel (Chairman and CEO of the fund and Gintel Asset Management and majority owner of Gintel & Co.) :
effected at least 40 cross trades on a principal basis between an investment company, the Gintel Fund, and accounts in which [Gintel] had an ownership interest in violation of the Investment Company Act's provision prohibiting trades between a registered mutual fund and affiliated accounts unless such trades meet the criteria for an exemption, which these did not.
And:
Gintel Asset Management also engaged in principal transactions in violation of the Advisers Act by causing client portfolios not affiliated with Robert Gintel to trade with accounts in which Gintel held a substantial ownership stake, including the Fund.
But wait! there's more! (with a nod to Ron Popeil):
In addition to these prohibited cross transactions, Robert Gintel engaged in extensive personal trading in securities, frequently within seven days of trades in the same securities by the Fund and other clients, in violation of the Fund and Gintel Asset Management's Code of Ethics.
Now here's the kicker:
The first set of prohibited cross trades took place at the end of 1998 and involved Milestone Scientific stock.
Granted, it was outside the class period in the securities litigation, but one more episode like that, and the Gintel Fund will be off the list.

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