Major Financial Services Firm Settles Mutual Fund Case
Attorney General Eliot Spitzer said today that his office has reached a settlement with a leading investment company that was accused of failing to inform investors about the risks associated with one of its mutual funds.
As part of the settlement, the Dreyfus Corporation based in Manhattan will contribute $1.6 million for an investor education program and pay the Attorney General’s office $400,000 for the costs of the investigation.
In the fall of 1996, Dreyfus ran advertisements stating that its Aggressive Growth Fund had returns of more than 80 percent in its first year.
Dreyfus, however, did not tell investors that much of the first-year profit came from one-time investments in Initial Public Offerings (IPOs), or that a majority of the fund consisted of investments in highly risky micro cap companies.
"This case should serve as a warning," Spitzer said. "Investors should do extensive research before they invest, and investment companies must be forthright in disclosing information about products and services."
Thousands of investors across the country lost millions of dollars in the Dreyfus Aggressive Growth Fund by 1997. Following complaints by investors, the Attorney General’s office began an investigation.
As part of the settlement, $1.6 million will go to the State University of New York for investor education and awareness programs. SUNY Provost Peter Salins said: "We welcome this infusion of funds, which will help the State University strengthen business and management programs focusing on finance and investor education."
The settlement also requires that the fund’s manager, Michael Schonberg, who is already on administrative leave, be suspended as an investment adviser for the next nine months.
Dreyfus has entered into a separate, parallel agreement with the Securities and Exchange Commission which includes the hiring of a consultant to review the firm’s practices and procedures. Spitzer thanked the SEC. for its assistance in the investigation.
Spitzer noted that the government settlements will not affect private legal actions brought against the company by investors.
As part of the settlement, Dreyfus admits no wrongdoing.
The case was handled by former Assistant Attorney General William Mohr and Scott Anderson, under the direction of Investor Protection and Securities Bureau Chief Eric Dinallo.