FleetBoston unit allowed improper trades

Mutual-fund employees at a unit of FleetBoston Financial Corp. improperly allowed "market-timers" to conduct rapid-fire trades in three funds, including one targeted at children, the Wall Street Journal reported on Friday, citing the company and unnamed sources.

The funds included the $855 million Columbia Young Investor Fund and the $371 million Newport Tiger Fund, the story said.

Boston-based Fleet acknowledged its Columbia Funds unit and predecessor Liberty Financial, which it acquired in 2001, allowed trading in the $855 million Stein Roe Growth Stock Fund, now called Columbia Growth Stock Fund, the Journal said.

Columbia Funds accepted so-called sticky assets, the Journal said, citing people familiar with the matter. In sticky-asset deals, market-timers put money in other investment vehicles run by the firm in order to help gain access to certain mutual funds for market-timing.

Fleet also said it would reimburse investors for losses caused by market-timing activity, according to the story.

Market timing involves quick-paced trading that most funds prohibit in their prospectuses, as it diminishes the return of long-term investors.

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Officials at Fleet were not immediately available for comment.

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FleetBoston revealed in January it was being investigated by the Securities and Exchange Commission over allegations that some mutual fund prospectuses failed to disclose certain trading activity in fund shares.

The investigation was concerned mainly with customers, in three mutual funds from 1998 and 2003, it said.

Fleet is being bought by Bank of America Corp.