2 Legg Mason affiliates agree to SEC penalties

Calif. fund manager inflated securities' values, agency says

October 02, 2001|By Bill Atkinson | Bill Atkinson,SUN STAFF

Two Legg Mason Inc. affiliates agreed to penalties levied by the Securities and Exchange Commission for not properly overseeing a mutual fund manager who inflated the value of two mutual funds she ran by overstating the stock prices of poorly performing securities, the agency said yesterday.

In addition, Legg Mason said it would pay about $2.5 million to investors who lost money in one of the funds, the Legg Mason High Yield Portfolio.

Legg Mason Fund Adviser Inc., the arm that oversees Baltimore-based Legg Mason Inc.'s mutual funds, and Western Asset Management Co., its Pasadena, Calif., investment adviser, neither admitted nor denied the allegations in the SEC's administrative proceeding.

Each affiliate, however, consented to a Sept. 28 order in which they were censured, agreed to pay a $50,000 penalty and agreed to maintain better supervisory policies and procedures.

"We actively cooperated with the SEC and reviewed and enhanced our procedures to prevent a similar occurrence," said Maura Fox, a Legg Mason spokeswoman. "We are pleased to put this matter behind us without material impact to the firm.

"Legg is contacting all shareholders who were affected by the error," Fox said. "Those who were adversely affected are being made whole, and Legg Mason is not seeking reimbursement from shareholders who benefited from the error."

Fox said investors who lost money in a smaller offshore fund, called the Legg Mason U.S. High Yield Investments NV, were reimbursed 2 1/2 years ago.

In conjunction with the penalties against Legg Mason's affiliates, the SEC also brought a cease-and-desist proceeding against Trudie D. Whitehead, who managed the funds from 1994 to 1998, and Kyle R. Kirkland, a broker who helped her value some of the stocks in the portfolios.

Whitehead and Kirkland agreed to settle without admitting or denying the SEC's findings. Whitehead agreed to pay a $25,000 penalty and to an order barring her from the investment industry.

Kirkland agreed to a $30,000 penalty and an order barring him from working with a broker, dealer or investment company for three years.

Neither Whitehead nor her attorney could be reached for comment.

Matthew Anhut, Kirkland's attorney, said his client "decided to settle to put this behind him ... and get on with other pursuits."

According to SEC documents, Whitehead bought securities from Kirkland, and some of the companies that she invested in for the mutual funds either went bankrupt, defaulted on interest payments or lost their assets in foreclosures.

Whitehead and Kirkland "defrauded the funds by concealing the problems and inflating the values of the troubled securities, which caused the High Yield Fund to materially overstate its net asset value," according to the SEC.

Whitehead, who worked in California, resigned from Legg Mason in November 1998.

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