OSC settles with Franklin Templeton

(February 28, 2005) The Ontario Securities Commission is putting the finishing touches on its probe of the mutual fund industry, today announcing that it has reached a settlement agreement with Franklin Templeton, the last of five fund companies identified by the regulator as engaging in market timing practices.

Details of the agreement will be announced Thursday morning at an OSC hearing in Toronto.

“Certain investors holding accounts in Franklin Templeton Funds have been identified as having profited as a result of frequent trading market timing strategies that were pursued in certain Franklin Templeton funds,” the commission says in its statement of allegations against the company.

Market timing is not illegal, but can hurt the interests of long-term investors and negatively affect a fund’s long-term performance.

In December, AGF, AIC, CI and Investors Group agreed to pay penalties totaling $156.5 million, with the OSC pledging that all the money would go directly to investors who were affected by the market timing strategies.

At the time, OSC chair David Brown, said that the investigation was over and that letters had been sent to other fund companies confirming that the regulator was not contemplating proceedings against them. The inquiry involved 105 Canadian mutual fund companies.

“Investors can now be confident that our year-long probe has uncovered the frequent trading market timing that has taken place and that the activity has been stopped,” Brown said.

It’s expected that Franklin Templeton will also be hit with a financial penalty, but the amount is unclear, since in the four other cases, the commission used a complicated formula, based partly on how much profit the market timers earned. For example, the investigation found that six investors made $47.9 million using the strategy in AGF funds. AGF was hit with a penalty of $29.2 million. While at AIC, three investors made $127 million in profits, and AIC was ordered to pay $58.8 million in restitution.

Filed by Doug Watt, Advisor.ca, doug.watt@advisor.rogers.com