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US Regulators Target Amvescap

Nov 9, 2003 | www.ft.com

Shares in Amvescap, Europe's largest publicly traded fund manager, slipped 6 per cent early on Monday after news that it could be charged with trading abuses by US regulators within the next two weeks. However, by late morning the stock had partly recovered to trade just 1 per cent lower.

Eliot Spitzer, New York attorney-general, is targeting Amvescap in a new wave of actions that will step up his investigation of the $7,000bn US mutual fund industry. Amvescap shares, which had been 25p lower at 392½p at one point on Monday morning, revived to 412p.

The company said on Monday: "Amvescap has received no notice from the New York State Attorney General regarding any legal action."

Mr Spitzer's plan is to create a steady "drumbeat of charges" that will lead to structural reform of the industry, according to people familiar with his thinking. His initial targets include the Invesco unit of Amvescap, Strong Capital Management, Alliance Capital Management and Security Trust, a provider of trust services to retirement plans, the people said.

Scores of other fund management companies are also under investigation by Mr Spitzer's office and other regulators including the US Securities and Exchange Commission.

Any accusations will be accompanied by lawsuits from the SEC, the US's chief financial regulator. The SEC's division of enforcement is conducting all the investigations in tandem with Mr Spitzer's office. In spite of occasional inflammatory rhetoric, the two regulators are working well together at an enforcement level, people on both sides agree.

The charges expected to be filed by Mr Spitzer's office over the coming weeks, whether criminal or civil, are likely to be connected to a failure to stop improper short-term trading, known as market timing, that decreases returns for long-term investors and is discouraged by most fund companies. The practice was pervasive at some of the companies and in some instances was condoned, promoted and even committed by senior executives, people familiar with the matter said.

A spokeswoman for Mr Spitzer declined to comment. The SEC would not comment. At the end of last week, discussions were still being held among lawyers, delays could occur and settlements could be reached.

Amvescap operates under the AIM, Atlantic Trust and Invesco brands. It was formed in 1997 from the merger of London-based Invesco and Houston-based AIM Management Group. While it serves clients in more than 100 countries, it gets more than half of its revenue from its US operations.

Mr Spitzer and the SEC are seeking substantial financial penalties from their targets as well as prescriptive remedies - agreements by targeted funds to change their practices, including governance.

A spokeswoman for Security Trust said it was co-operating with authorities. Calls to Strong and Alliance were not returned.


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