ROANOKE TIMES
Copyright (c) 1996, Roanoke Times
DATE: Thursday, May 2, 1996 TAG: 9605020036
SECTION: BUSINESS PAGE: B-8 EDITION: METRO
DATELINE: WASHINGTON
SOURCE: Associated Press
The Justice Department is investigating several large mutual funds to determine whether they broke antitrust laws by boycotting a bond sale earlier this year, officials said Wednesday.
In January, mutual fund operators were angered when Illinois announced it was considering repeal of a tax credit the funds said endangered $480 million in bonds that were issued to build waste incinerator plants.
Major mutual funds threatened to boycott future bonds sales by the state in protest of the repeal.
Illinois was forced to cancel sale of $52 million of municipal bonds in late January after more than a dozen investment managers declined to participate. Gov. Jim Edgar, who said he wasn't going to be pressured by Wall Street, signed the repeal order in March.
A Justice Department spokesman said the agency is looking ``at the possibility of collusive practices'' involving tax-exempt bonds but didn't identify the companies under review.
However, Brian Mattes, spokesman for The Vanguard Group Inc. in Valley Forge, Pa., said that mutual fund company received a civil investigative demand about a month ago from the department's antitrust division about the Illinois matter. The notices are the civil equivalent of a subpoena and are used to gather documents and testimony in investigations.
``Our internal review indicated that our funds conducted their activities in a proper manner at all times,'' Mattes said in a statement. Vanguard has been cooperating with the Justice Department, he said.
He declined to comment further because of the pending investigation. The Wall Street Journal said in Wednesday's editions that other major funds received similar notices, including Boston-based Fidelity Investments. A Fidelity spokeswoman declined comment.
Edgar's aides met with more than a dozen mutual fund managers in January who had sunk millions into the incinerator bonds. At that time, New York investment banker David Kagan, who consulted on two of the three Illinois incinerator projects, said bond funds ``are going to shy away from Illinois'' if the tax credit repeal affects existing projects.
But Kagan later said he didn't believe the bond rejection was the done in a ``collusive fashion'' because the tremendous competition among bond funds makes it difficult for them to coordinate on anything.
Edgar spokesman Mike Lawrence said representatives of the Justice Department interviewed at least two people in the administration several months ago.
``They were asking about the situation where these companies did not get involved in bidding,'' Lawrence said. ``We had not referred this matter to the Justice Department.''
In March, Edgar repealed part of the Retail Rate Law that requires utilities to buy energy from companies using renewable sources - such as incinerated solid waste - in return for a tax credit.
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