DREYFUS MANAGER OWNED CHROMATICS SHARES BEFORE JOINING FUND
New York, June 12 (Bloomberg) -- One of Dreyfus Corp.'s money managers owned shares of Chromatics Color Sciences International Inc. in a personal account before buying shares of that company for mutual funds that he managed, making his own investment more valuable.
Dreyfus's disclosure comes amid allegations the fund manager, Michael Schonberg, may have manipulated the stock of Chromatics. The charge was made by Manuel Asensio, who runs a New York-based investment bank that's making a bet against Chromatics by "short-selling" the company's stock.
While calling the claim "totally baseless," Dreyfus said it's conducting an internal investigation. Based upon the allegations of wrongdoing leveled against Dreyfus and (Schonberg) by Asensio and Co.," the company said.
Schonberg hasn't sold any shares of Chromatics that he personally owns, and to date, the Dreyfus funds and not Schonberg have realized gains from the investment in Chromatics, said Dreyfus spokeswoman Patrice Kozlowski.
Dreyfus has retained libel counsel to respond to the allegations and actions of Asensio, she said.
"We have said nothing about the funds' cost basis in Chromatics, or realized or unrealized profits, or the impact on the funds' overall performance," Asensio said. "What we have said is that Dreyfus has failed to supervise Schonberg."
Dreyfus said Schonberg, who was replaced in April as lead manager of two Dreyfus funds by Paul LaRocco, has complied with the company's personal securities trading policies.
RENEWING DEBATE
The situation at Dreyfus is renewing a debate about whether fund managers should be allowed to buy securities for their personal accounts. Some analysts think there should be an outright ban against the practice.
"It's time to have a set policy that fund managers just can't buy shares for their own account," said John Rekenthaler, senior analyst at Morningstar Inc., a mutual fund industry research group.
All mutual fund companies have stringent restrictions on money managers' personal trading of stocks and bonds. The Securities and Exchange Commission concluded in 1994 that a ban on personal trading wasn't necessary to protect investors.
Industry executives have argued that it would be wrong, for instance, to make money managers discorge stocks they inherited or purchased at a previous job. Also, they say investors shouldn't expect managers of "sector" funds that focus their assets in shares of one industry, for example, to limit their buying to shares of their funds.
Dreyfus' internal policies don't prohibit portfolio managers from personally investing in companies in which funds they manage also may invest, Kozlowski said. These policies fully comply with SEC requirements, she said.
20,000 SHARES
Schonberg purchased about 20,000 shares of Crromatics before joining Dreyfus in August 1995 and he still holds those shares, Kozlowski said. The Dreyfus Aggressive Growth Fund, which Schonberg managed, held 495,000 shares of Chromatics as recently as Feb. 28, according to the fund's semi-annual report.
Schonberg has made a tidy unrealized profit from his investment in Chromatics. Shares of the company, which is developing a medical device that helps test infants for jaundice, closed today at 7. Schonberg paid about $2.50 for each of his Chromatics shares, Business Week reported.
Schonberg, 47, was hired by Dreyfus, a unit of mellon Bank Corp., to bolster the firm's stock fund ranks. The funds that Schonberg mamaged solely until April, the Dreyfus Aggressive Growth Fund and the Dreyfus Premier Aggressive Growth, have lost money for investors over the past 2 1/2 years.
The Dreyfus Premier Aggressive Growth Fund declined 2.37 percent in 1996, fell 13 percent this year, as of yesterday.
Schonberg has spent most of the past 23 years managing other people's money. Before joining Dreyfus in the summer of 1995, he worked at Omega Advisors, a hedge fund run by former Goldman Sachs & Co. partner Leon G. Cooperman.
His resume also includes stints at DuPont Co., Alliance Capital Management Corp., Cambridge Capital Corp. and UBS Asset Managements.
Schonberg wasn't available for comment today. |
