Banc One, a mutual fund adviser headquartered in Columbus, Ohio, has over $100 billion in assets under management.
Under terms of the settlement, Banc One has agreed to pay $10 million in restitution and disgorgement, $40 million in civil penalties and $40 million in a reduction of fees charged to investors over a five-year period.
The agreement, reached in cooperation with the Securities and Exchange Commission, also includes significant corporate governance requirements designed to maintain and create enhanced board independence at Banc One.
"As this latest settlement demonstrates, we remain committed to restoring soundness to the marketplace. We will continue to pursue mutual fund companies who put their own interests before the interests of investors," Spitzer said.
Market timing activity within Banc One funds was uncovered during the Attorney General’s investigation of Canary Capital Partners in the summer of 2003.
The Attorney General’s investigation found that preferred investors were allowed to engage in improper, frequent short-term trading of Banc One mutual funds while diluting the funds’ returns to shareholders. For example, Banc One’s agreement with Canary Capital allowed Canary to engage in fund timing activity expressly prohibited by the Banc One’s prospectus. Banc One also (1) waived prospectus-required redemption fees for Canary and another fund-timing hedge fund; (2) disclosed confidential portfolio holding information to facilitate Canary's fund timing; and (3) arranged for an affiliate of Banc One Corporation to lend Canary the money it used to time the Funds.
Terms of the agreement with Banc One include:
- a requirement that Fund boards have an independent chairman with no prior connections to Banc One or its affiliates,
- 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.
