Legg U.K. unit is near settling case tied to trust scandal

Money manager is among 21 probed over $1.5 billion lost in type of investment

December 18, 2004|By Bill Atkinson | Bill Atkinson,SUN STAFF

A Legg Mason Inc. subsidiary in London is close to a settlement that stems from a long-standing investigation into it and 20 other money managers over a $1.5 billion investment trust scandal.

Terms of the settlement with the British securities regulator were not disclosed in a document filed yesterday with the Securities and Exchange Commission.

The investigation, which began three years ago, was described last year as the largest undertaken by the Financial Services Authority, which oversees the British securities industry.

The subsidiary, Legg Mason Investments Ltd., is "likely to be among a number of firms that will enter into a settlement agreement with the FSA," the parent company said in its SEC filing.

Under a proposed settlement, Legg Mason Investments would not admit to wrongdoing, but would contribute to a fund for investors who lost money in investment trusts, the company said in the SEC filing.

Legg said it has established "adequate" reserves and expects "insignificant" impact from the settlement on its results for the fiscal third quarter, which ends Dec. 31.

Jeffrey Bukowski, a Legg Mason spokesman, said the company does not comment on regulatory matters.

The investigation into Legg Mason Investments and the other money managers has focused on split-capital investment trusts, according to the SEC filing. A split-capital investment trust is similar to a balanced mutual fund that allows investors to choose from among growth and income-producing securities.

The vehicles were especially popular in the late 1990s because they offered investors higher than normal returns. But a number of them reportedly couldn't pay dividends to investors after technology and Internet stocks plummeted in 2000.

British authorities are investigating allegations of misleading marketing and collusion among the firms as the funds collapsed.

When the investigation began, it "focused on allegations that some trusts colluded to prop up share prices by investing in each other," according to an article on the BBC News Web site.

Shares of Legg Mason fell 72 cents yesterday to close at $70.68 on the New York Stock Exchange.

Legg also stated in the filing that beginning in September 2003, it has responded to inquiries from the New York attorney general and the SEC relating to their industrywide mutual fund probes in the United States.

Its brokerage subsidiary, Legg Mason Wood Walker, has been cooperating in two separate SEC investigations connected to those inquiries.

One investigation is continuing. Legg said it couldn't predict the outcome or estimate the impact on its financial results.

In the second investigation, the brokerage unit recently began negotiating with the SEC to resolve the matter and took a $1.2 million charge in the second quarter in September.

Legg said it does not expect a settlement in the investigation will be "material to our business and results of operations."

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