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Janus Finalizes Regulatory Settlement

Aug 18, 2004 | AP

Janus Capital Group Inc. said Wednesday it 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 an additional $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.

The announcement finalized an agreement proposed in April between Janus and regulators.

"The $100 million that Janus has agreed to pay and the significant reforms that it has agreed to implement reflect the seriousness with which the staff views market timing arrangements," Stephen M. Cutler, director of the Securities and Exchange Commission's enforcement division, said in the statement.

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 SEC said the company allowed 12 entities to use marketing timing practices with certain mutual funds. Two of those accounts apparently were never funded.

Janus has acknowledged 10 market timing arrangements, all of which have ended, and has said it will return to shareholders $31.5 million gained from market timing trading. It also 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 Alliance Capital Management, Janus Capital Group 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.


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