Janus knew in June of at least five clients who were timing or planned to time trades in the company’s mutual funds, according to an internal e-mail obtained by New York Attorney General Eliot Spitzer.
The Janus e-mail, found during Spitzer’s investigation into the mutual fund industry, is part of more than 200 pages of supporting documents Spitzer’s office has released as it makes its case that illegal or unethical trading is victimizing mutual fund investors.
Spitzer’s investigation of New Jersey hedge fund Canary Capital ensnared Janus and three other mutual fund companies – Bank of America, Bank One and Strong Capital. Spitzer has subpoenaed or contacted many other companies, like Vanguard or Denver- based Invesco Funds Group, according to those companies’ disclosures.
Yet the Janus e-mail coupled with Janus’ Friday-night announcement that it will make restitution to its long-term shareholders for any economic damage from market timing – suggests the practice of allowing timing of the Janus funds extended well beyond the Denver company’s relationship with Canary Capital.
In the statement, Janus said, “It’s important to note that this is not a widespread issue at Janus. In fact, we believe that the total investment by discretionary timers equals less than one-half of one percent (0.5 percent) of Janus’ total assets under management.”
Janus reported $152 billion in assets under management Monday, a 1.6 percent increase from July. If timers have less than 0.5 percent, the timers have about $750 million at Janus.
That’s a great deal more than the $10 million to $50 million Janus e-mails suggest Canary wanted in April to put into additional timing investments, a plan that was never consummated.
An e-mail June 3 between two Janus employees Spitzer’s office blacked out their names, leaving them anonymous surveyed Janus’ timing relationships. The e-mail suggested at least five Janus clients had permission to time or felt they had permission to time.
But all the clients had different allowances. “We are all over the board. There is no consistency. It is the wild west out there,” the employee wrote.
One client “is trading about $37 million in chunks of $15 million, $15 million and $7 million,” the employee said. The client is allowed timing trades 12 times a year.
Another client “has permission to trade 1 percent of fund assets in any fund (two times per month), but he wants 3x/mo,” the employee wrote.
By June 11, as the discussion continued, at least a dozen employees were aware of a draft of timing parameters, according to an e-mail.
A client who intended to time needed to have a minimum of $10 million in assets in Janus funds, with 50 percent of those assets “static,” or not involved in the timing trades. No more than 1 percent of total fund assets could be moved in a single day, and a timer was limited to 12 “round trips” a year.
The Janus employee who presented this draft to 11 others receiving the e-mail said, “Our stated policy is that we do not tolerate timers” but ” when pressed and when we believe allowing a limited/controlled amount of timing activity will be in (Janus’) best interests” which the employee defined as “increased profitability to the firm” – “we will make exceptions.”
It’s not clear if any Janus portfolio managers participated in the discussion. “The purpose of this is to control timing so that it does not become a hindrance to the portfolio manager,” the e-mail continues. “If properly controlled, it should be invisible to the (portfolio manager).”
Janus CEO Mark Whiston said Friday that an outside adviser would determine the economic harm to shareholders, and Janus would return that amount, as well as any fees from the market timers, to the shareholders.
“The fact is, Janus has been a devoted champion of individual investors for over 34 years,” Whiston said.
Janus spokeswoman Jane Ingalls said Monday, “We take the attorney general’s investigation extremely seriously and are committed to doing what’s right for our shareholders.”
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