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. …