Franklin Can't Come Clean

Just when I thought it might be winding down, the mutual fund scandal is back to rear its ugly head. Yesterday, Franklin Resources (NYSE: BEN  ) , parent of the Franklin Templeton family of mutual funds, settled a dispute with Massachusetts by agreeing to pay $5 million and admitting that it allowed a large investor to rapidly trade in and out of its funds during 2001, a sleazy practice that has become known as market timing.

Specifically, the Massachusetts complaint alleged that Las Vegas-based broker Daniel Calugar was allowed to move $45 million in and out of Franklin's Small Mid-Cap Growth Fund in exchange for a $10 million investment in its FT Hedge Fund.

The deal piles on to the Securities and Exchange Commission's unsettling settlement announced last month. Sure, the SEC was able to extract $50 million, but it couldn't get anyone at Franklin to admit wrongdoing, nor did it get Franklin to lower fees as so many others have, including Bank One (NYSE: ONE  ) , Janus (NYSE: JNS  ) , and Wells Fargo's (NYSE: WFC  ) Strong Capital unit.

Unfortunately, the commonwealth also fell short in getting Franklin to say it was wrong. In a statement filed with the SEC -- but notably missing from the news section of the website -- Franklin said that although it "did not admit or deny engaging in any wrongdoing, the Company believes that it is in the best interest of the Company and its funds' shareholders to settle this issue now and move forward."

Yeah, and my neighbor's cat eats dog food. Come on, guys.

Maybe it's me, but mealy-mouthed non-denial denials and incremental settlements just don't cut it for investors who were burned by shifting profits to a big-time trader. Franklin was so blatantly in the wrong that you'd think the natural thing to do would be to simply say, "Yeah, we blew it, and we're sorry."

Motley Fool Champion Funds chief analyst Shannon Zimmerman has said before that you shouldn't entrust money to a fund that hasn't settled its differences with regulators. Technically, that would mean Franklin gets a clean bill of health. But does that seem right? It doesn't to me. So let's go one further: Don't invest in funds that haven't proven they have your best interests at heart. Investors deserve at least that much. Too bad Franklin has yet to meet that standard.

For other fund analysis from the Fool, check out:

It's not difficult to find funds that have your best interests at heart. Just take a free 30-day trial toMotley Fool Champion Fundsand find out how to earn market-beating returns in a Foolishly diversified portfolio.

Fool contributor Tim Beyers wishes fund companies were as tired of the scandal as he is. Tim owns no interest in any of the companies mentioned, and you can view his Fool profile here.


Read/Post Comments (0) | Recommend This Article (0)

Comments from our Foolish Readers

Help us keep this a respectfully Foolish area! This is a place for our readers to discuss, debate, and learn more about the Foolish investing topic you read about above. Help us keep it clean and safe. If you believe a comment is abusive or otherwise violates our Fool's Rules, please report it via the Report this Comment Report this Comment icon found on every comment.

Be the first one to comment on this article.

DocumentId: 501842, ~/Articles/ArticleHandler.aspx, 4/21/2014 1:12:55 AM

Report This Comment

Use this area to report a comment that you believe is in violation of the community guidelines. Our team will review the entry and take any appropriate action.

Sending report...


Advertisement