The SEC's action was brought contemporaneously with a related action by the Attorney General of the State of New York.
Stephen M. Cutler, Director of the SEC's Division of Enforcement, said, "IFG and its CEO willingly sacrificed the interests of mutual fund shareholders when market timers dangled the prospect of higher management fees in front of them. By granting special trading privileges to selected customers, they readily violated the fiduciary duty they owed to all shareholders and rendered meaningless the funds' prospectus disclosures on market timing."
Randall J. Fons, Regional Director of the SEC's Central Regional Office in Denver, said, "The sort of activity alleged in this complaint is an egregious and inexcusable violation of the trust that Invesco's public shareholders put in IFG. In circumstances like this, where a fiduciary puts its own interests before those of the fund shareholders, the individuals and entities responsible for the fraudulent conduct will be held accountable."
The SEC's complaint, filed today in the United States District Court for the District of Colorado, alleges the following.
- From at least July 2001 until October 2003, IFG and Cunningham fraudulently accepted investments by market timers in Invesco mutual funds to enhance the management fees earned by IFG. Specifically, IFG entered into specific arrangements with particular investors under which these investors were allowed to market time Invesco funds. IFG termed these investors "Special Situations." These Special Situations were kept secret from the independent members of the funds' boards and from the funds' investors. According to the Commission's complaint, IFG and Cunningham accepted these investments with knowledge that they would be detrimental to long-term shareholders in the mutual funds. In addition, these Special Situations violated the market timing policy disclosed in the prospectuses for the mutual funds. This policy stated that exchanges between funds by investors would be limited to four yearly and that changes in this policy would only be allowed if it was in the best interests of the funds.
- Despite this disclosure, IFG did not enforce its market timing policy for shareholders whose accounts were less than approximately $100,000. In addition, IFG allowed a multitude of larger shareholders to market time the Invesco funds. Nevertheless, IFG continued to fraudulently mislead investors by using the prospectuses that contained the false market timing policy.
- The complaint further charges that IFG and Cunningham had a fiduciary duty to act at all times in the best interests of the Invesco mutual funds. Accordingly, they had an affirmative obligation to act in the utmost good faith, and to provide full and fair disclosure of all material facts to investors. Despite this duty, IFG and Cunningham never disclosed to shareholders in the funds or the independent directors of the Invesco fund complex that the Special Situations existed or that IFG had a conflict of interest because the Special Situations served to increase its management fees.
The SEC's action seeks permanent injunctions against IFG and Cunningham, disgorgement of their ill-gotten gains plus prejudgment interest, and civil penalties.
The Commission's investigation is continuing.
