SEC And Spitzer Charge InvescoDec 2, 2003 | www.ft.com
Invesco, a US arm of Europe's biggest fund manager, and its chief executive have been hit with civil fraud charges by both the Securities and Exchange Commission and Eliot Spitzer, the New York attorney-general.
The regulators allege that Invesco, a unit of the UK's Amvescap, and Raymond Cunningham, its chief, engaged in a massive mutual funds trading scheme that allowed certain investors to trade rapidly in and out of funds, causing millions of dollars in losses for typical Invesco investors.
The charges came on the day that Richard Strong resigned as chairman, chief executive and chief investment officer of Strong Capital Management, a firm he founded. Regulators have alleged that Mr Strong also engaged in improper trading, making $600,000 for himself and members of his family.
The charges against Invesco and the Strong resignation are part of the widening mutual fund scandal rocking the $7,000bn US industry. Mr Spitzer said in an interview that he hoped investors were getting his message: "Mutual fund companies that violated their obligation to put your interests first are going to be pursued and charged with fraud."
His complaint said Invesco and its chief executive promoted arrangements that permitted market timing [arbitraging of fund shares]. "Top managers knew market timing was harming buy-and-hold investors but they condoned and facilitated it because it was a lucrative source of management fee revenues."
Regulators said the favoured clients traded Invesco funds dozens of times a year between July 2001 to October 2003, generating huge profits for themselves while reducing profits for average investors. This was despite fund prospectuses stating trades were limited to four a year.
And regulators say there is evidence that this continued even though senior managers knew of the disadvantages for average investors, and warned about it.
Invesco said it would vigorously contest the charges. Active trading of the sort engaged in was not new and was not illegal, Invesco said. Also, the company had tried in good faith to stop it when it appeared harmful.
Invesco said: "In this highly regulated industry, no clear regulations or directions have been provided that bear specifically on which market timing activities should be permissible and which should not."