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Morgan Stanley Says Funds Didn't Receive Tips

A published report says the SEC is investigating allegations of possible insider trading linked to Dean Foods shares.

September 30, 2003|From Bloomberg News

Denying allegations of possible insider trading, Morgan Stanley said Monday that two of its mutual funds bought stock in Dean Foods Co. based on "public information" and not on any tips from its bankers who were advising Suiza Foods Corp. on the purchase of Dean Foods.

The Wall Street Journal reported that the Securities and Exchange Commission was investigating the purchases by Morgan Stanley Strategist Fund and Morgan Stanley 21st Century Trend Fund of more than 1 million shares in Dean Foods before a March 13, 2001, meeting between Dean Foods, Suiza and Morgan Stanley bankers on the possible purchase of Dean Foods by Suiza.

The report cited people familiar with the SEC probe.

SEC spokesman John Nester declined to comment on the Journal report.

"Our review shows all purchases of [Dean Foods] shares were based only on public information," Morgan Stanley spokesman Bret Gallaway said. He declined to comment on whether the firm is subject to an SEC investigation.

A probe into Morgan Stanley would come amid heightened scrutiny of mutual funds.

Former Bank of America Corp. broker Theodore Sihpol was charged by the SEC and New York state with larceny and securities fraud for allegedly giving a hedge fund an illegal edge over other investors in trading mutual fund shares.

Earlier this month, Morgan Stanley was fined $2 million by NASD, formerly known as the National Assn. of Securities Dealers, which claimed the securities firm used forbidden incentives to encourage the sale of its mutual funds.

The penalty was the biggest imposed by the NASD involving mutual fund abuses. The Washington-based NASD is a self-regulatory agency that oversees the brokerage industry.

Last month, William F. Galvin, secretary of the Commonwealth of Massachusetts, cited similar abuses when he filed a complaint against Morgan Stanley. He sought a fine and demanded the firm return entire investments to clients along with commissions of $5 million to $8 million.

Morgan Stanley's Strategist Fund, which invests in U.S. stocks, had $1.19 billion in assets as of June and the 21st Century Fund, which invests primarily in U.S. stocks, bonds and money market instruments, had $125 million in assets.

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