DENVER – 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 $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 tentatively reached in April between Janus and the Securities and Exchange Commission, and regulators in Colorado and New York.
Janus said it consented to the agreement without admitting or denying the findings.
The SEC’s Regional director, Randall Fons, said it was an equitable settlement and that Janus executives have been cooperative.
“This closes the book with respect to Janus, the entity,” he said. “Our investigation into activities at Janus is continuing.”
Fons declined to be more specific. Janus spokeswoman Shelley Peterson declined to comment Wednesday.
In a May regulatory filing, Janus said the SEC still was looking into agreements between Janus and its brokers.
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 Janus allowed 12 entities to use marketing timing practices. Two accounts apparently were never funded.
The largest entity, which was not identified, used market timing to make more than 500 trades in at least seven funds, including total purchases of more than $2.5 billion, the SEC said in the settlement agreement.
That entity’s investments began in the Janus Mercury Fund in November 2001 because of a friendship that existed between one of its executives and an unidentified Janus portfolio manager at the time, the settlement stated.
It expanded to the other funds by April 2002, and by summer 2003 it had invested up to $263 million in Janus funds at any given time, the SEC said.
Janus has acknowledged 10 market timing arrangements, all of which have ended, and said one investor was responsible for a majority of the trading.
It initially estimated the amount that would be returned to shareholders from market timing at $31.5 million, and took a $59 million charge in the first quarter related to the settlement.
Peterson said the company would not have to take an additional charge as a result of Wednesday’s announcement because the monetary amounts remained the same as in the proposed agreement.
Janus Chairman and CEO Steve Scheid said the company already has implemented several controls, including procedures to discourage market timing, monthly portfolio holdings disclosures and the appointment of an independent chairman. “We are focused on delivering strong, consistent performance to our fundholders and putting their interests first and foremost,” he said.
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