Don't falsify records. Especially not board meeting minutes. That is the lesson every mutual fund firm executive can take away from a case brought by the SEC against Frances Guggino.

Guggino, a former Legg Mason Partners Fund Advisor, LLC CFO and treasurer, is on the hook for a $15,000 fine as part of a settlement with the SEC over altering the books on a mutual fund in 2010. The agency found that Guggino failed to make more than $600,000 in distributions from a commission fair fund to two Legg Mason mutual funds and then falsified paperwork stating that the payments had been made.

She did not admit or deny the charges as part of her settlement. MFWire was unable to reach either Guggino or Treehouse Consulting Group (her current employer) for comment.

The falsified paperwork includes a copy of a mutual fund's trail balance and board meeting minutes, and a letter from a custodian bank on company letterhead.

Guggino resigned from Legg Mason in 2010, in connection with the company's investigation into this mater.

In addition to her fine, the settlement bars Guggino from working in the money management business. According to her Linkedin profile, Guggino is now a senior vice president at Treehouse Consulting Group, a New York CIty-based firm whose website touts "Integrated Financial and Growth Solutions." The SEC settlement notes that she now goes by the name Frances Faveta.

On August 23, the SEC filed an order outlining its charges against Guggino. Guggino was treasurer of the Citi- and Salomon-branded mutual funds at Citigroup when they were acquired by Legg Mason in 2005, when she became Legg Mason's CFO and fixed-income fund treasurer.

According to the order, the case stems from a 2005 SEC settlement with Smith Barney and Citigroup under which the two firms were ordered to pay a combined $128 million to their mutual fund customers and set up a fund from which the money would be drawn.

After Legg Mason acquired Citigroup's asset management business in 2005, Legg assumed the responsibility of distributing the money. And since some of the mutual funds named in the settlement were liquidated before the money was distributed, Legg Mason was required to distribute money to these funds prior to their liquidation. Legg Mason was later reimbursed from the fund for the money it sent to the liquidated mutual funds.

The SEC claimed that Guggino failed to send the required money to two mutual funds prior to their liquidation, so that $600,000 intended for the Legg Mason partners Capital Preservation II Fund and $16,000 meant for the Legg Mason Partners Variable Government Portfolio was not immediately paid.

A Legg Mason spokeswoman told MFWire that the $616,000 was paid out to the liquidated mutual funds after the mistake was discovered.

Guggino's real problems started when Legg Mason's finance department began asking about the distribution. According to the SEC, when the department asked Guggino for a record that the money had been sent, she falsified a document on the letterhead of the custodian bank saying the money had been paid out. The SEC did not name the bank, and the Legg spokeswoman also declined to identify it.

The Legg Mason spokeswoman told MFWire that if Guggino had notified management immediately, the matter would not have escalated as far as it did.

"Legg has a tolerant policy," said the spokeswoman. "If she had informed Legg of the mistake, we would have worked with her and the SEC to resolve the matter."

Instead, as Legg Mason's internal investigation into the missing money intensified, Guggino dug herself deeper. The SEC's order says that she "fabricated multiple documents," including a copy of a fund's trial balance and board meeting minutes, and also altered emails by "cutting and pasting text from one email into another or changing the text that had originally appeared in the email."

As the SEC order laconically put it, Legg Mason finance execs "were not persuaded" by Guggino's chicanery.

The Legg Mason spokeswoman says that the company "retained outside council and promptly brought the matter to the attention of the SEC," and "cooperated fully with the authorities, continuously sharing with them the results of our own investigation."

Legg Mason has not brought any complaint against Guggino independent of the SEC investigation.  

Stay ahead of the news ... Sign up for our email alerts now
CLICK HERE