One of these funds, the Commonwealth’s state and teachers’ fund, known as the Pension Reserves Investment Trust (PRIT) Fund, lost just under $5 million.

Sung actually worked for Rhumbline Investment Advisers which PRIT hired as an up-and-coming local firm in 1992. J.D. Nelson, who owns Rhumbline, had brought Sung aboard as his chief investment officer to run a quantitative strategy that involved writing options on stock indexes such as the Standard and Poor’s 500.

Sung had developed this strategy while a partner with Harvard Management Co., which manages Harvard University’s endowment fund. He was regarded as a shining star in his field.

But it all came crashing down this September 30 when the SEC, after a two-year investigation, announced it had filed an action in Boston’s U.S. District Court charging that between July and September 1996, Sung increased the magnitude and riskiness of his trading beyond allowed limits. In the case of PRIT, the complaint alleges that he wrote more options than permitted, concealing his losses.

PRIT Earlier Alerted

PRIT trustees had earlier been alerted to Sung’s over-zealous strategy and had pulled its $250 million out of Rhumbline two years ago. Since that time, PRIT officials have cooperated with the SEC in the investigation.

Nelson, Rhumbline’s head, has agreed to pay a $10,000 fine to the SEC for failing to adequately supervise the trades. Also, the firm agreed to pay the SEC a $50,000 fine.

“I hired somebody that was very, very, experienced in options trading, etc. and we put our confidence in him. I was at the helm . What can I say,” said Nelson.

Actually, it was Nelson who first alerted PRIT that Sung had overstepped his loss limit of 4% of the market value of the account.

PRIM made extensive efforts to seek a claim against Rhumbline, but Rhumbline’s insurance carrier was only required to pay the policy limits ($1 million) to resolve all claims. Since AT&T, another client, had much larger loses ($150 million), PRIT was at best only able to negotiate a split of 40% to PRIT and 60% to AT&T.

The SEC and its resultant publicity couldn’t have come at a worse time for PRIT, which was reeling from a $2.3 billion loss when the market crashed in August. “We had dropped Rhumbline two years ago and accepted our loss on a fund which had earlier performed quite well,” said PRIT trustee Ralph White. “We knew the SEC suit was coming down…we just didn’t know exactly when.”

Clients Remain Confident

Rhumbline remains in business, managing over $3 billion in a conservative index strategy which mirrors the S&P 500.

Locally, the MBTA is Rhumbline’s largest client, with $70 million of the T pension fund under management. The Boston, Quincy, Plymouth County, Norfolk County, Hampshire County, North Attleboro and Amesbury pension funds have also allocated money to Rhumbline for management.

Fund trustees remain confident with Rhumbline’s index fund management and do not fault J.D. Nelson for Bing Sung’s trading violations.

“I’ve known J.D. since his early days at the State Street Bank, when he was in charge of the public funds master trust division,” said John “Jack” Gallahue, executive director of the $1.6 billion T Fund. “He’s very professional in his work and a pleasure to be associated with.”

“Rhumbline’s previous experience with option bets did not involve us,” said Boston Retirement Fund trustee John “JJ” Jennings. “It’s my understanding that style of management only involved PRIT and AT&T. J.D. Nelson runs a class shop… I know the experience with Bing Sung has caused him tremendous personal grief.”