Janus Capital Group Inc. has agreed to pay $100 million in fines and restitution and lower its fees by $125 million to settle accusations of abusive mutual fund trading practices that benefited a few favored clients.
Janus, the ninth-largest U.S. mutual fund manager, reached the agreement with New York Attorney General Eliot Spitzer and Colorado Attorney General Ken Salazar. The accord had the cooperation of the Securities and Exchange Commission and Colorado Division of Securities, Bloomberg reported.
The Denver-based company will pay $50 million in restitution and disgorgement and $50 million in civil penalties. Janus has five years to lower mutual fund management fees by $125 million.
"This settlement continues our efforts to level the playing field for mutual fund investors,'' Spitzer said in a statement. "From now on, market timers will no longer be given special access and permitted to profit at the expense of long-term investors."
Janus was one of the first companies that Spitzer named in September when he announced his investigation of the $7.6 trillion industry. Spitzer accused Janus of allowing investors, including the Canary Capital Partners LLC hedge fund, to make rapid-fire, short-term trades in its funds. The practice, called market timing, is said to water down the returns for long-term investors while boosting transaction costs.
Janus acknowledged in December that 10 investors were allowed to make short-term trades in seven funds. The revelations spurred investors to withdraw a net $16.1 billion from Janus funds. Chief Executive Officer Mark Whiston and other top officials resigned.
The investigation forced Janus to set aside reserves of $62.8 million in the fourth quarter, including $31.5 million to repay fund investors hurt by improper trading.
Janus officials have said that the company’s rates are so low that it’s a poor candidate for rate cuts. Janus's average weighted stock fund expenses are $9.20 per $1,000 invested, which is sixth-lowest among the 25 largest mutual fund companies, according to data compiled by Bloomberg.
Analyst John Hall of Prudential Equity Group said, in a report to investors today before the settlement, "A reduction in fees for Janus, while not good, would neither be a disaster." The fee cut will reduce earnings per share by 3 cents, Hall wrote.