SAN FRANCISCO (MarketWatch) — Legal troubles for Alberto Vilar and Gary Tanaka are evidently just beginning, but investors in their technology-stock mutual fund are long suffering.
Vilar and Tanaka were removed as managers of the Amerindo Technology D Fund
according to a Securities and Exchange Commission filing Tuesday. The fund board’s action on Friday came one day after the two men were arrested on federal charges of defrauding investors and stealing $5 million from an unnamed client. See related story.
The board also shut the fund to new investment and launched a search for a new manager to run the troubled portfolio.
Morningstar Inc. isn’t waiting for further developments. On Tuesday, the influential investment research firm advised Amerindo Technology shareholders to sell.
“Charges of fraud against Amerindo Technology’s managers are just the most obvious reason to avoid it,” said analyst Dan Lefkovitz in a written report. “We’re worried that impending redemptions will only exacerbate the fund’s problems by forcing it to sell out of positions.”
Amerindo Technology had assets of $122 million and owned just 12 stocks as of March 31, according to a SEC filing, with large positions in eBay Inc.
Eyetech Pharmaceuticals Inc.
and XM Satellite Radio Holdings Inc.
Forced selling of concentrated holdings could bring a lower price for the shares and make the fund’s illiquid private-stock holdings a greater portion of the overall portfolio, creating further constraints on management’s flexibility.
“Amerindo is shocked over the events of the past two days,” the firm said in a prepared statement on Friday. “The company is mindful of the presumption of innocence and awaits the outcome of the government’s investigation. In the meantime, Amerindo has cooperated fully with the government and will continue to do so.”
Boom to bust
Amerindo Technology was a poster child for the stunning Internet bubble of the late 1990s and the equally spectacular bust that followed. The fund soared 249% in 1999, but its fortunes turned in 2000, when it tumbled 65%, followed by two additional years of double-digit losses, according to Morningstar.
Vilar and Tanaka salvaged their record in 2003 with a gain of 85% and a 24% rise in 2004, but still the fund has lost 16% on average over the past five years and is down 17% so far this year, at the bottom of its technology category.
Such wild performance swings, coupled with an annual expense ratio of 2.25% and an aggressive focus on speculative Internet and biotechnology stocks, apparently proved too hot for many investors. Amerindo Technology’s assets dwindled to $122 million at March 31 from $578 million at the end of 1999.
Meanwhile, shareholders who stuck with Amerindo Technology on the strength of Vilar’s reputation don’t have much to show for it. A $10,000 investment in the fund at the beginning of January 1999 was worth just $7,425 at the end of April, according to Morningstar. That same investment in the Standard & Poor’s 500 Index
would have grown to $10,344.
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