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Janus, Regulators Reach $225M Settlement

Apr 28, 2004 | AP

Janus Capital Group is paying more than $225 million as part of a multimillion-dollar settlement reached nine months after regulators accused the mutual funds giant of improper trading practices.

The agreement announced Tuesday prompted Janus to take a $59 million charge, which led the Denver-based mutual fund giant to a quarterly loss.

Under the $225 million agreement announced Tuesday, Janus also will reduce the fees it charges investors by $125 million over five years.

The company now faces the difficult task of rebuilding credibility, analysts said.

"The brand has been so tarnished by being involved in this," Morningstar analyst Rachel Barnard said. "It's going to be a rebuilding year."

Janus spokeswoman Shelley Peterson said company officials are confident they're up to the task. "This (settlement) is a huge step forward for the firm," she said.

The agreement is the latest deal to emerge from the scandal sweeping the $7 trillion mutual funds industry.

Janus was under investigation for market timing a type of rapid, in-and-out trading that can skim profits from long-term fund shareholders.

Regulators accused Janus of entering into agreements with select investors that permitted them to engage in market timing while diluting the returns of other shareholders. The practice is legal, but Janus policies discouraged it.

Regulators say companies that officially forbade the practice but made exceptions for certain clients are guilty of fraud.

Janus has acknowledged 10 market timing arrangements, all of which have ended, and previously said it will return to shareholders $31.5 million gained from market timing trading.

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 or denying wrongdoing and agreed to cooperate with investigators. Other companies have agreed to settlements ranging from $40 million to $675 million.

Last week, Janus CEO Mark Whiston resigned after less than two years on the job, though the company and regulators said his departure was not related to the scandal.

Under the agreement announced Tuesday, Janus also will pay $1.2 million to the Colorado attorney general's office for investor education, future enforcement and attorney's fees. It will institute measures to create more accountability to prevent future problems.

The agreement was reached in principle with regulators in Colorado and New York pending final approval of the Securities and Exchange Commission. An SEC representative declined comment.

Spitzer, Colorado Securities Commissioner Fred Joseph and Colorado Attorney General Ken Salazar expressed satisfaction with the settlement. "From now on, market timers will no longer be given special access and permitted to profit at the expense of long-term investors," Spitzer said.

Salazar said the mechanics of how the money would be repaid had yet to be finalized. He said Janus still faces shareholder lawsuits that are not likely to be affected by the settlements.

Salazar's office did not look into any individual responsibility since the violations occurred under consumer protection law.

After the settlement, Janus reversed its profit and posted a net loss in the first quarter, citing a $59 million charge related to a regulatory settlement over claims of improper trading practices.

For the quarter that ended March 31, Janus posted a net loss of $19.3 million, or 8 cents a share, compared with net income of $38.6 million, or 17 cents a share, in the first quarter of 2003, the company said. Revenues totaled $274.4 million, up from $231.2 million.

The $59 million charge included $55.7 million for civil penalties and restitution and $3.3 million of legal and other administrative expenses related to the investigation, the company said. Mutual funds are the primary vehicle for retirement savings and college funds for 95 million Americans half of all households. Janus had $145 billion in assets as of March 31, down from $151.5 billion at the end of December.

Earlier this month, Putnam Investments agreed to pay $110 million to settle allegations by the SEC and Massachusetts regulators of improper trading in the first big market-timing case.

Alliance Capital Management agreed to relinquish $600 million, and Bank of America and FleetBoston Financial, which have merged, agreed to a $675 million settlement.


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