Bank One Corp. moved to clear its name with regulators before relegating it to history, reaching a settlement over improper mutual-fund trading practices just before Thursday's merger with J.P. Morgan Chase & Co.
The nation's sixth-biggest bank agreed Tuesday to a deal that will cost it $90 million: $40 million in civil penalties, $10 million in restitution and $40 million in fee reductions for investors over the next five years.
The agreement involving Bank One's investment unit, Banc One Investment Advisers, is another step forward for the agencies that uncovered the "market timing" scandal last year.
"Today's sanctions show that the commission continues to aggressively pursue mutual-fund advisers — and their senior management — when they place their own interests above those of fund investors," said enforcement director Stephen Cutler of the Securities and Exchange Commission, which announced the agreement jointly with New York Attorney General Eliot Spitzer.
The allegations had been an embarrassing red mark in an otherwise triumphant final year as an independent company for Bank One, whose merger will move its headquarters to New York as part of the No. 2 bank. Bank One's retail branches are taking the Chase name.
Its Banc One unit, based in Columbus, Ohio, has over $100 billion in assets. Its market timing practices were discovered last summer during Spitzer's investigation of hedge fund Canary Capital Partners LLC.
Dozens of fund companies were subpoenaed and a handful of others also have agreed to multimillion-dollar settlements to resolve accusations of wrongdoing, including Alliance Capital Management and Bank of America.
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."
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.
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.
Cutler 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.
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.