2 employees fired by Morgan Stanley under SEC probe

Baltimore branch chief, broker let go last month

Report points to market timing

April 09, 2004|By Jamie Smith Hopkins | Jamie Smith Hopkins,SUN STAFF

Morgan Stanley has fired the branch manager of its Baltimore office and a broker there who are reportedly being investigated by the U.S. Securities and Exchange Commission.

Harry "Buddy" Buzzerd, the branch manager, and broker Chris Glassman were let go last month, spokeswoman Andrea Slattery said yesterday. She would not explain why or comment on the alleged inquiry.

"We never comment on regulatory matters," she said.

The Wall Street Journal, which reported this week that the SEC is investigating mutual fund trading at the Baltimore office, said the pair were dismissed for "activities related to market timing." Neither employee could be reached for comment.

Mutual funds generally ban market timing - the frequent buying and selling of shares in an attempt to take advantage of short-term gains - because the transaction costs hit everyone, harming long-term investors. If they're successful, market timers also sap profits from people who buy and hold.

"Our feeling is, this is a long-term investment," said Dan McHugh, president of Lombard Securities Inc. in Fells Point and a former regulatory official at the National Association of Securities Dealers. "It is an abuse of a long-term vehicle to use it for short-term trading."

It's not necessarily good for the market timers, either. McHugh figures that some lost "pretty big money doing this" because the market doesn't always react to news in predictable ways.

The SEC would not comment on the Morgan Stanley situation because it does not confirm or deny reports of investigations.

In November it filed fraud charges in federal district court in Boston against five brokers and a branch manager - all former Prudential Securities Inc. employees - who allegedly hid their identities to circumvent mutual funds' market-timing restrictions.

"That's fraud, plain and simple," Stephen M. Cutler, director of the SEC division of enforcement, said in a statement at the time.

A separate government investigation last year uncovered allegations of widespread illegal trading of funds, including mutual fund companies breaking their own rules on market timing by making exceptions for select large investors.

Between September and the end of the year, investors withdrew $10.7 billion from mutual funds named in the investigation and sent $28.9 billion to other funds, according to the Investment Company Institute, the mutual fund industry's trade association.

"It was a dramatic effect," said John Collins, spokesman for the institute.

Morgan Stanley hasn't been embroiled in the mutual fund market-timing scandal before, but it was sanctioned twice last year for alleged mutual fund abuses.

The company agreed to pay $50 million in penalties and surrendered profits after the SEC and the National Association of Securities Dealers said it accepted millions of dollars in brokerage commissions for giving preferential treatment to some mutual fund companies.

NASD also fined Morgan Stanley $2 million for allegedly holding contests for its brokers and managers to promote the sale of its own mutual funds and a few variable annuities.

In both cases, Morgan Stanley neither admitted nor denied the charges.

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