MUTUAL FUND SCANDAL Bank One reaches $50M settlement

The settlement came just before the merger with J.P. Morgan Chase & amp; Co.
CHICAGO (AP) -- Bank One Corp. agreed Tuesday on the eve of its final day as an independent company to settle regulators' allegations that it allowed a hedge fund to make improper mutual fund trades.
The $50 million settlement, which includes $10 million in restitution and $40 million in civil penalties, also calls for Bank One's mutual funds unit, Banc One Investment Advisers Corp., to reduce the fees it charges investors by $8 million annually over five years.
The deal was announced by the U.S. Securities and Exchange Commission and New York Attorney General Eliot Spitzer, which had jointly made the allegations of improper market timing involving the mutual funds unit.
Mark Beeson, the 46-year-old former president and CEO of the company's One Group mutual funds, was ordered by the SEC to pay a civil penalty of $100,000 and barred from the mutual-fund industry for three years.
SEC allegations
The SEC said Beeson and the Banc One unit violated federal securities laws by allowing hedge-fund manager Edward J. Stern to engage in "excessive" short-term trading, which increased Banc One's fees. In addition, Banc One failed to charge Stern redemption fees as required and improperly provided him with confidential portfolio holdings.
Stern gained approximately $5.2 million from 300 transactions executed within One Group funds between June 2002 and May 2003, which the SEC said Banc One allowed in the hope it would lead to additional business from Stern.
Stephen Cutler, director of the SEC's enforcement division, said that by allowing Stern to do market timing and receive confidential information, Banc One and Beeson "blatantly disregarded the well-being of One Group funds' long-term shareholders."
The agreement also includes compliance and mutual-fund governance reforms at Banc One, which is based in Columbus, Ohio, and has over $100 billion in assets.
The settlement came just before the merger of Chicago-based Bank One with New York-based J.P. Morgan Chase & amp; Co., which takes effect Thursday.
Dozens of fund companies have been subpoenaed by the SEC, the states of Massachusetts and New York and other regulators amid reports of widespread improper trading.
Market timing, a type of quick, in-and-out-trading, is not illegal but is prohibited by many funds because it tends to skim profits from long-term shareholders. Regulators say funds that allowed selective market timing committed fraud.
The market timing within Banc One funds was discovered during Spitzer's investigation last summer of hedge fund Canary Capital Partners LLC. Canary and its managers agreed to pay $30 million in restitution for profits generated from improper trading, plus a $10 million penalty to settle Spitzer's allegations.
David Kundert, chairman and CEO of Banc One Investment Advisers, said strong procedures are now in place to prevent a recurrence.
"Soon after we first learned of these investigations, we committed to cooperate with regulators, make restitution to shareholders and review and change our policies as appropriate," he said. "The monetary and governance actions outlined in these agreements build upon the controls and policies we initiated last fall to fulfill that commitment."