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SEC Accuses Fund Co. of ‘Spinning’

March 2, 1998

WASHINGTON (AP) _ In the first case of its kind, federal regulators have accused a mutual fund company of improperly providing ``hot″ new stocks to the personal accounts of three of its directors, allowing them to make quick profits from them.

The Securities and Exchange Commission’s allegations against Monetta Financial Services Inc. of Wheaton, Ill., and its president, Robert S. Bacarella, announced Friday, came in the agency’s first case involving a practice called ``spinning.″

The firm, Bacarella and the three directors all have denied any wrongdoing.

In ``spinning,″ securities firms looking to get future business from certain companies, allocate shares of ``hot″ initial public offerings to the personal brokerage accounts of the companies’ executives. The shares often are later sold, or ``spun,″ by the executives for quick profits.

The practice has increasingly come under scrutiny by the SEC.

In its administrative proceeding against Monetta, the agency alleged that the firm and Bacarella channeled ``hot″ IPO shares to the personal accounts of the three directors, who accepted them ``without disclosing the practice to the (mutual) funds’ shareholders and obtaining the consent of (impartial) representatives of the funds.″

The directors _ William M. Valiant, Paul W. Henry and Richard D. Russo _ made total profits of $51,822 by selling the shares, according to the SEC.

Steve Scholes, an attorney for Monetta and Bacarella, told The Wall Street Journal in today’s editions that his clients ``fully complied with the law″ and intend to defend themselves ``aggressively.″

Ted Helwig, the attorney for Valiant and Henry, said, ``In no way have we breached fiduciary duties or defrauded any of the shareholders of the mutual funds.″ Russo’s lawyer, Peter Shaeffer, said his client ``is going to carefully review what we believe to be a unique, unprecedented charge by the SEC. Mr. Russo will continue to maintain his position that he did not violate SEC law and will vigorously defend the charge.″

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