MUTUAL FUND SCANDAL Janus reaches deal to settle allegations
Investors will be paid millions in restitution and will pay lower fees.
DENVER (AP) -- Janus Capital Group Inc. has finalized a $226.2 million settlement with state and federal regulators over improper trading allegations, part of a scandal sweeping the $7 trillion mutual funds industry.
Janus will pay $100 million to investors -- $50 million in restitution and $50 million in civil penalties -- and reduce the fees it charges investors by $125 million over five years.
The Denver-based company will pay $1.2 million to the Colorado attorney general's office for investor education, future enforcement and attorney's fees. It also will institute measures to guard against future problems.
Janus said it consented to the agreement without admitting or denying the findings.
SEC Regional Director Randall Fons said it was an equitable settlement, and that Janus executives have been cooperative.
The SEC said Janus allowed 12 entities to use marketing timing practices. Market timing is a type of rapid, in-and-out trading that can skim profits from long-term fund shareholders. The practice is legal, but Janus policies discouraged it. Regulators say companies that officially forbade the practice but made exceptions for certain clients were guilty of fraud.
The largest entity, which was not identified, used market timing to make more than 500 trades in at least seven funds, including total purchases of more than $2.5 billion, the SEC said in the settlement agreement.
That entity's investments began in the Janus Mercury Fund in November 2001 because of a friendship that existed between one of its executives and an unidentified Janus portfolio manager at the time, the settlement stated.
It expanded to the other funds by April 2002 and by last summer, it had invested up to $263 million in Janus funds at any given time, the SEC said.
Janus has acknowledged 10 market timing arrangements, all of which have ended, and said one investor was responsible for a majority of the trading.
It initially estimated the amount that would be returned to shareholders from market timing at $31.5 million, and took a $59 million charge in the first quarter related to the settlement.
The industry scandal came to light in September when New York Attorney General Eliot Spitzer accused Canary Capital Partners, a multimillion-dollar hedge fund, of securing special trading privileges at several big-name mutual fund companies, including Janus.
Canary settled for $40 million without admitting wrongdoing and agreed to cooperate with investigators.
In the past 12 months, several major fund complexes -- including Janus, Alliance Capital Management and Bank of America Corp. -- have paid hundreds of millions of dollars to settle improper trading charges brought by regulators. Fund executives, managers and traders have also been accused of wrongdoing.