A Wednesday article by two at Morningstar condemns Wachovia unit Evergreen Investment Management for "abysmal" disclosure of frequent trading by one of its managers.

On Tuesday, officials at the companies disclosed that the SEC notified them on July 28 about a proposed enforcement action against Evergreen. The regulators allege that a former Evergreen employee and a broker arranged to trade mutual fund shares, violating policies laid out in fund prospectuses. Evergreen did not disclose the name of the former employee in the filing.

Based on past notes in Evergreen's funds' prospectus and annual report, the Morningstar analysts speculate that the former Evergreen employee is Prescott Crocker, the ex-head of Evergreen's high yield group and manager of Evergreen Precious Metals fund. Crocker retired in February 2004.

The Morningstar reporters uncovered that Evergreen included disclosures in two funds' documents -- the Mid Cap Growth Fund and the Precious Metals Fund -- noting that the funds were paid back because an investor engaged in frequent trading of the fund's shares. The disclosures were in documents dating back to the fall of 2003.

Evergreen did not indicate the amount paid back to the Mid Cap Growth Fund, while it said it paid back the Precious Metals Fund $70,878.

"If Evergreen discovered that employees had directly participated in, or otherwise facilitated, violations of the funds' prospectuses...then the firm has a responsibility to share those findings with shareholders in the most transparent way possible," wrote the reporters.

"Based on what we've seen, Evergreen did the bare minimum and hoped the problem would simply go away. That doesn't cut it," they wrote. 

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