Prudential Mexico President: Stanford Probe Has Hurt Mutual Funds

The president of Prudential Financial's Mexican unit said Tuesday that the U.S. investigation of Allen Stanford for securities fraud has hurt the Mexican mutual fund industry.

Mexico's securities regulator last week suspended the sale of three locally traded Stanford Financial Group mutual funds, following an investigation begun in February into whether investors were illegally sold foreign securities by Stanford's local unit.

"The Stanford issue has hurt us, and it has hurt us because people said: 'Well, how do I know you aren't doing what Stanford did?'" said Manuel Somoza, president of Grupo Financiero Prudential, at a press conference.

Mexican law prohibits financial intermediaries from offering foreign investments unless they are securities authorized by the commission for sale to the public by authorized banks or brokerages.

Stanford Fondos is authorized in Mexico to distribute Mexican mutual funds, which are operated by a number of different local banks and brokerages, but a number of local investors put their money into Stanford offshore operations.

"Stanford's funds have been sold in Mexico for seven, eight, nine, 10 years by people who came from outside and convinced Mexican investors, who didn't understand much, by paying them double the yield obtained in the market," Somoza said.

Mexico has about 500 mutual funds with 1.7 million clients and assets under management around $56 billion.

-By Paul Kiernan, Dow Jones Newswires; (5255)5001-5726, [e-mail]