A Janus Capital Group executive who quit amid growing scrutiny of the $7 trillion mutual fund industry may have approved improper trading arrangements, investigators said Tuesday.
Richard Garland, who joined the Denver-based company in 1998 and headed Janus International, is among a number of Janus employees who have resigned since New York Attorney General Eliot Spitzer and other regulators began investigating the industry.
Garland approved expanding Canary Capital’s agreement with Janus, allowing market-timing trades, Spitzer said in a Sept. 3 complaint in New York Supreme Court.
According to Spitzer, Janus and other firms allowed Canary to engage in market timing, quick trades that skim profits from long-term shareholders for select customers. It is not illegal but most funds do not allow it; Janus says it discourages the practice.
Garland approved market timing despite concerns from several unidentified Janus employees who cited concerns about the activity, according to e-mails cited in Spitzer’s court filing.
“This is a big problem domestically and I want to avoid this at all cost before it gets too problematic offshore,” one employee said in an e-mail sent to Garland in March. “Obviously, your call from the sales side.”
Another employee wrote that if such trading was to be allowed, officials should ensure “we are making a decent profit for all the trouble we are put through.”
Spitzer also cited an April e-mail from Garland: “I have no interest in building a business around market timers, but at the same time I do not want to turn away ($10 million to $20 million).”
Garland, who worked at a Janus office in Westport, Conn., did not return messages left Tuesday at his home and on his cellular phone.
Spitzer spokesman Brad Maione said he could not comment beyond what was in the complaint. He said charges will be filed, but would not say against whom. “Whether they are criminal or civil is yet to be determined,” Maione said.
Janus confirmed Garland’s departure Monday, but company officials have declined to provide the reasons for his resignation.
Analysts said those reasons seemed clear enough.
“It seemed like he was involved in approving certain market-timing arrangements,” said Dan McNeela, a Morningstar fund analyst. “I think he had become a lightning rod at Janus in terms of being a prominent figure in the scandal.”
Janus officials have acknowledged that market-timing arrangements were made within the company. Fewer than 10 employees who thought such frequent trading was legitimate have resigned.
Janus spokesman Blair Johnson said officials believe such activity occurred in the Mercury, Worldwide, Enterprise, High-Yield and Overseas retail funds and the Adviser Worldwide and Adviser International funds. The division Garland ran seeks out international investors.
Morningstar has advised investors to consider selling their holdings in funds managed by Janus and other groups cited in Spitzer’s complaint: Bank of America’s Nations Funds, Banc One and Strong.
Investors from around the country have filed at least 18 federal lawsuits against Janus, claiming that market-timing cost shareholders.
In a filing Tuesday with the Securities and Exchange Commission, Janus chief executive Mark Whiston said the company was cooperating with regulators and clamping down on market timing.
“The few employees central to the decisions to accept the discretionary trading arrangements had either left Janus prior to the announcement of the (New York) Attorney General’s allegation or have resigned,” Whiston wrote.
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