Risk & Compliance

Janus Firm Settles Fraud Charges

The SEC ordered the asset manager to disgorge $50 million and pay another $50 million in civil penalties as a result of alleged market timing.
Ed ZwirnAugust 19, 2004

Registered investment adviser Janus Capital Management LLC (JCM) agreed to pay $100 million to the Securities and Exchange Commission (SEC) to settle charges that the Denver-based company entered into “undisclosed market-timing agreements with certain investors.”

As part of a settlement including federal and state regulators, the firm also reduced the fees it charges investors by $125 million over five years, according to the Associated Press. The company will also reportedly 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.

Janus, which consented to the SEC’s orders without admitting or denying the findings, was ordered to disgorge $50 million and pay civil penalties of $50 million. The company also consented to a cease-and-desist order and a censure and agreed to undertake certain compliance and mutual-fund governance reforms.

Stephen Cutler, director of the SEC’s enforcement division, said that the settlement, including the significant reforms that Janus agreed to undertake, reflects the seriousness with which the SEC views market-timing arrangements. “We will continue to investigate these improper arrangements in an effort to hold all responsible parties accountable.”

Randall Fons, regional director of the SEC’s Central Regional Office, added that the settlement would “ensure compensation for all victims of the harm that resulted from these improper arrangements and prevent this misconduct from happening again.”

Specifically, the SEC found that Janus “negotiated market-timing agreements with 12 entities.” Some of the agreements were entered into with the understanding that the market timer would make long-term investments, so-called “sticky assets,” in certain Janus mutual funds. In addition, the SEC said, Janus waived all redemption fees that would have otherwise been assessed against the market timers for their frequent trading activity.

The SEC concluded that while the market timing diluted the affected mutual funds, Janus collected advisory fees from the activity. As a result, Janus created a conflict of interest with its mutual funds subject to the timing agreements. However, the company never disclosed the conflict of interest to its board or shareholders.