State probing mutual funds

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Monday, Jan. 5, 2004 | 9:30 a.m.

SACRAMENTO -- Attorney General Bill Lockyer launched an investigation Friday into whether three California-based mutual fund companies failed to disclose that they were paying brokers for recommending certain mutual funds.

Lockyer wouldn't name the three companies under investigation, but said all were implicated in the Security and Exchange Commission's investigation of Morgan Stanley.

The SEC and Morgan Stanley reached a settlement last month in which the company agreed to pay a $50 million fine and change its business practices after allegedly steering clients toward "preferred" mutual funds in exchange for millions of dollars in commission payments from those companies.