The Janus Capital Group announced on Friday that it will pay $31.5 million to funds or shareholders harmed by improper trades.
The $31.5 million figure was determined by the accounting firm Ernst & Young LLP, which conducted an inquiry into the effect of quick trades on the funds and their shareholders. The probe found that 10 investors were allowed to purchase and redeem shares of certain Janus funds more frequently than other investors, Janus told the Wall Street Journal.
Market timing is not illegal, but it gives certain investors the ability to take advantage of stale prices that do not reflect events that took place after underlying securities in a fund were last traded.
For each of the seven funds involved, the amount payable to the fund or its shareholders would amount to one cent or more per share as of Nov. 30, according to Janus' filing with the Securities and Exchange Commission (SEC). Securities regulators must approve the payment plan.
"Investors are looking at the ultimate settlement being some reasonable multiple of that number ($31.5 million), which all things considered, won't have a critical impact on Janus longer term,'' said Matt Snowling, an analyst at investment bank Friedman, Billings, Ramsey Group Inc.
The Journal reported that the $31.5 million payment includes net gains of about $22.8 million realized by the discretionary frequent traders; about $2.7 million representing opportunity cost of those gains had they been available to the funds; management fees of about $1 million received by Janus Capital Group related to discretionary trading accounts; and waived redemption fees of nearly $5 million.
The payment figure does not include any additional penalties that may be sought by the New York attorney general or the SEC, Janus told Reuters. The company said it expects civil penalties and a remediation plan to result.
Janus announced that it would adopt fair value pricing in certain instances to discourage market timing, and said it will eliminate the use of brokerage commissions to buy third-party research or services. The decision to voluntarily stop the practice known as "soft dollars" will increase expenses by about $9 million a year, the company said.
Janus also announced Friday that Chief Executive Mark Whiston will not take up the additional role of chairman, and it named Steve Scheid, formerly vice chairman of Charles Schwab Corp., as non-executive chairman effective Jan. 1. Reuters reported that by waiving his right to become chairman, Whiston will forfeit a cash payment of $20 million to $23 million.