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Janus, a mutual fund adviser headquartered in Denver, Colorado is the ninth largest mutual fund company in the nation.
Under terms of the settlement, Janus has agreed to pay $50 million in restitution and disgorgement to injured investors, $50 million in civil penalties, and $125 million in a reduction of fees charged to investors over a five-year period. In addition, Janus has agreed to pay $1 million to be held in trust by the Colorado Attorney General to be used for consumer and investor education and future enforcement activities.
Market timing activity within Janus funds was uncovered during Attorney General Spitzer's investigation of Canary Capital Partners in the summer of 2003. Since that time, coordinated investigations by the regulators revealed that Janus entered into a series of agreements with select investors which permitted these preferred investors to engage in improper, frequent short-term trading of Janus mutual funds while diluting the returns of other fund shareholders. Attorney General Salazar began his own inquiry of market timing abuses at Janus in October.
The agreements Janus made with timers were not disclosed to long term investors.
On the contrary, statements contained in prospectuses sent to investors stated
that "the Funds are not intended for market timing or excessive trading,"
and outlined a series of measures to "deter these [market timing] activities."
Market timing is the rapid buying and selling of mutual funds by favored traders. Such trading harms long term holders of a mutual fund by diluting the value of funds held by them. A 2002 internal Janus report highlighted the scope and negative impact of timing on Janus funds.
"This settlement continues our efforts to level the playing field for mutual fund investors," said Attorney General Spitzer. "From now on, market timers will no longer be given special access and permitted to profit at the expense of long term investors."
"We have lost too much trust and confidence in the management of our corporate and financial institutions," said Attorney General Salazar. "We protect both consumers and businesses when the corporate community follows the rules. Janus has now agreed to do so." Attorney General Salazar added, "I commend management at Janus for stepping up and agreeing to make so many positive changes to correct its past conduct and to agree to put in place substantive procedures to earn back the public trust."
Janus has also agreed to significant corrective measures designed to create greater board and adviser accountability and to prevent the kinds of abuses that gave rise to these investigations.
These measures include:
- that Janus Funds' boards have an independent chairman with no prior connections to Janus or its affiliates,
- refined policies and procedures to detect and deter market timing activities,
- provisions for greater transparency of omnibus accounts to allow Janus to identify and terminate additional market timing activity,
- enhanced compliance and ethics controls,
- new requirements for disclosure to investors of expenses and fees, and
- a commitment to hire a full-time senior officer to ensure that fees charged by the funds are negotiated at arm's length and are reasonable.
The matter is being handled in New York by Assistant Attorney General Maria Filipakis with assistance provided by Economist Hampton Finer of the AG's Public Advocacy Division. In Colorado, Deputy Attorney General for Consumer Protection Jan Zavislan, First Assistant Attorney General Maria Berkenkotter and Assistant Attorney General Andrew McCallin led Attorney General Salazar's efforts.
