By Diana B. Henriques
N.Y. Times News Service
It is an article of faith that the mutual fund industry is "squeaky clean" _ an impression that owes less to the record than to this booming industry's talent for public relations.
Last week a glint of lessattering reality broke through as a federal jury in Manhattan brought in a guilty verdict against Patricia Ostrander, a former portfolio manager at Fidelity Investments, the largest mutual fund family in the country, at which hundreds of thousands of Americans have accounts.
Ostrander had been accused of accepting what amounted to bribes from Michael Milken in exchange for buying his junk bonds for accounts she managed, including the Puritan and Equity Income funds, each of which is worth about $5 billion.
Specifically, she was charged with accepting Milken's invitation to join a private partnership that bought into deals he put together. She made $736,800 on a $13,200 investment, a profit that Fidelity is suing her to recover.
Milken, testifying in Ostrander's defense, acknowledged that only his most faithful bond purchasers were invited to invest, but insisted there was no quid pro quo.
The jury thought otherwise, and Ostrander now faces up to 13 years in prison and $750,000 in fines.
Ostrander is not the first mutual fund manager to run afoul of federal laws or regulations. She's not even the first Fidelity junknd manager to do so: In March, William H. Pike, her successor, settled Securities and Exchange Commission charges that he failed to keep accurate records of fund transactions.
And in January, a former manager at another major mutual fund family, Benalder Bayse Jr. of First Investors Corp., who had been accused of insider trading and accepting Ostranderpe favors from Milken, agreed to SEC fines.
Truth be told, it had already been a terrible year for defenders of the "squeakyean" position. In June, First Investors itself agreed to pay nearly $25 million to settle SEC charges that it had misled its junknd fund investors.
Many mutual fund executives say these are just aberrations. But complacency seems illited to an industry that is now confronting all the temptations that go with being one of the biggest pools of capital around.
While mutual funds have been part of the financial landscape at least since the 1920s, they have rarely seen anything like the growth of the last dozen years. …