Mutual Fear And Loathing At A Mutual FundBy
With a reputation as one of the savviest mutual-fund managers around, Michael Price isn't easily perturbed. So, asked about a lawsuit recently brought against his Mutual Series Fund by one of its independent directors, Price seems amused: "This is like a gnat biting your neck," he says.
Maybe so, but the bite of this pest, Stanley Kitzinger, may smart more than most. The suit questions how closely Price has abided by controls put in place as part of a Securities & Exchange Commission consent order signed in 1988. That year, Price's investment advisory firm, Heine Securities Corp., without admitting or denying guilt, entered into an agreement on charges that it failed to disclose fully brokerage fees paid by Mutual Series funds to Price and the late Max Heine, Heine's ex-president.
Plaintiff Kitzinger may also feel a sting. A Mutual Series Fund proxy just arriving at shareholders' doors contains material strange and unsettling: It dredges up the association of both Kitzinger and the fund's independent directors with a lawyer who was later arrested for impersonating a doctor.
GETTING THE SACK. The suit involves a battle between Price, who runs both Mutual Series Fund and Heine Securities, and Kitzinger, a 75-year-old former research analyst and a fund director since 1980. Price is pushing Kitzinger off the board. In his complaint, filed in federal court in April, Kitzinger alleges he is being tossed out because he, "more than any other director, has acted to insure the rights and interests of the shareholders." Kitzinger claims it was primarily his actions that led the fund group to raise Heine's management fees from 0.5% to 0.6%, instead of the 0.7% requested. That may seem trivial, but with $4.3 billion in assets, the difference to Heine adds up to $430,000. Kitzinger loses the title of director on June 28, but his suit demands that he remain on the board.
Price's version differs. His fund group's proxy says that Kitzinger is being sacked because he didn't conform to the group's code of ethics by refusing to provide certain financial statements. The proxy also claims Kitzinger discussed "confidential Fund business" with his lawyer and "disrupted" board meetings. Says Price: "The guy is a dangerous guy to have on a board." Kitzinger says he later provided the statements, adding: "I acted at all times as an independent director, not a rubber stamp."
Whether Kitzinger is a crank or a whistle-blower, his lawsuit opens the doors for an ugly internecine squabble--at a time when Price would probably rather avoid the spotlight. The three funds under his Mutual Series Fund umbrella--Mutual Qualified, Mutual Shares, and Mutual Beacon--have had stellar results over the long term. But all three stumbled badly in 1989 and 1990, losing roughly 10% in 1990, vs. a 3.1% drop for the Standard & Poor's 500-stock index. His funds are trailing the S&P by 3 percentage points through May 31 of this year.
DOCTOR, LAWYER. Also potentially vexing is the chance that Kitzinger's suit, if brought to trial, will drag into view the contents of a so-called letter of deficiency the SEC sent Mutual Series Fund in February. Price calls the letter a routine response to an SEC audit, like a "parking ticket." He adds: "I would dispute very strongly that there was anything in there that's in any way serious." Still, he declines to reveal its contents.
Price, while pooh-poohing the suit, has taken a step that appears intended to help him discredit Kitzinger, should any case come to trial. In describing Kitzinger's lawsuit, Mutual Series Fund's proxy devotes a hefty paragraph to the relationship between Kitzinger and his former lawyer, Roger Kapp, who was general counsel at American Home Products Corp. for two years. The proxy refers to him only as Kitzinger's lawyer, without naming him, but indicates that he had represented the independent directors of the fund for several years. The proxy charges that Kitzinger consulted with "his lawyer" about "confidential Fund business" and suggested the fund hire Kapp as a consultant, "even though Kitzinger's lawyer was arrested in October, 1990, for Criminal Impersonation Second Degree." Kapp was arrested for ordering a New York hospital to provide enemas to two women patients, then telephoning the patients to discuss the enemas. Kapp's lawyer, Barry Bohner, said at the time that Kapp's conduct stemmed from a "medical problem for which he is receiving treatment." He now adds that Kapp's case has been "adjourned in contemplation of dismissal," a fact the proxy includes as well.
Price says his original proxy contained little more than a proposed slate of directors. But after Kitzinger demanded that the proxy include details of his complaint, Price evidently chose to trot out the criminal impersonation detail. Price says he has bigger things to worry about: "I've got to focus on making money for shareholders." No doubt they hope his focus will be sharper than it has been over the past two years.
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