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Three questions

Thomas James: Chairman and chief executive, Raymond James Financial Inc., St. Petersburg

Q. Some large mutual fund companies have been accused of allowing illegal after-hours trading in their funds and giving large customers special market-timing privileges to jump in and out of funds. How has Raymond James responded?

After-hours trading is fraud. It was shocking to me. We have kept a constant flow of information going to our financial advisers. We have not ceased selling the funds, but those fund groups are not amongst those where we have high activity. Some of the funds that have encouraged timing, or just permitted it, happen to be funds that have had a big runoff of assets due to poor performance, particularly in the technology area.

Q. Could anything like this have happened at Raymond James, either directly with one of your Heritage funds or indirectly with a Raymond James broker acting as an intermediary?

I find it almost impossible to believe that an institution would have permitted after-hours trading. If it's an employee at a fund acting in concert with several brokers to break laws, it would be very difficult to detect. They put in false timing tickets and all that stuff. Could we have prevented it? Not necessarily. Do I think we've had any? Not based on any of the audit results.

We have policies both on our mutual fund desk and on Heritage's order desk to not only discourage short-term timing, but to throw out clients who do it. We actually won't do business with certain brokerage firms that have a history of having some timing activity in the Heritage funds. While timing is not illegal, it does increase the cost of doing business, and we don't believe in it.

Q. Do you think investors have lost any of the confidence they once had in mutual funds as a result?

No. Mutual funds have been an excellent, relatively error-free type of investment. The major thing that affects client confidence is making or losing money. I'm glad that activities like after-hours trading are immediately detected and taken care of. They are embarrassing to the industry.