Invesco memo blasted trades

Now, it is being used against funds firm

Cox News Service

Tuesday, December 9, 2003

Atlanta — Canary Capital Management’s in-and-out trading of Invesco mutual funds was so disruptive that Timothy Miller, Invesco’s chief investment officer, insisted in an internal memo that the “bastards” ought to be cut off.

“These guys . . . are day-trading our funds, and in my case I know they are costing our legitimate shareholders significant performance,” Miller wrote to other Invesco executives in February.

Ten months later, Miller’s memo castigating Canary has taken on ironic proportions: It is being used to bolster a securities fraud case against Invesco. And Canary, a key player in what has become a widening mutual fund industry scandal, has settled allegations against it and is cooperating with regulators.

Profiting by hedge funds such as Canary at the expense of buy- and-hold investors is at the core of the securities fraud charges filed last week against Invesco by New York Attorney General Eliot Spitzer, the Securities and Exchange Commission and Colorado’s attorney general.

The SEC and Spitzer accuse Invesco and Raymond Cunningham, its chief executive officer, of committing fraud by permitting favored investors to trade more often than fund rules would lead other shareholders to believe, to bring Invesco more management fees.

Invesco, a unit of Amvescap, has denied any wrongdoing and has noted that market timing is legal.

At the very least, however, company documents contained in the New York lawsuit show how troublesome market timing had become for Invesco as well as for long-term mutual fund investors.

In January, Invesco executive James Lummanick told Cunningham in a memo that the firm “has increased its business risk by granting frequent exceptions to its prospectus policy (effectively changing the policy) without notice to shareholders.”

Lummanick, the firm’s chief compliance officer, wrote in the same memo that while “this waiver benefits market timers, it may not be the same thing as acting ‘in the best interests of the fund and its shareholders.’ “

Invesco memo blasted trades

Now, it is being used against funds firm

Cox News Service

Tuesday, December 9, 2003

Atlanta — Canary Capital Management’s in-and-out trading of Invesco mutual funds was so disruptive that Timothy Miller, Invesco’s chief investment officer, insisted in an internal memo that the “bastards” ought to be cut off.

“These guys . . . are day-trading our funds, and in my case I know they are costing our legitimate shareholders significant performance,” Miller wrote to other Invesco executives in February.

Ten months later, Miller’s memo castigating Canary has taken on ironic proportions: It is being used to bolster a securities fraud case against Invesco. And Canary, a key player in what has become a widening mutual fund industry scandal, has settled allegations against it and is cooperating with regulators.

Profiting by hedge funds such as Canary at the expense of buy- and-hold investors is at the core of the securities fraud charges filed last week against Invesco by New York Attorney General Eliot Spitzer, the Securities and Exchange Commission and Colorado’s attorney general.

The SEC and Spitzer accuse Invesco and Raymond Cunningham, its chief executive officer, of committing fraud by permitting favored investors to trade more often than fund rules would lead other shareholders to believe, to bring Invesco more management fees.

Invesco, a unit of Amvescap, has denied any wrongdoing and has noted that market timing is legal.

At the very least, however, company documents contained in the New York lawsuit show how troublesome market timing had become for Invesco as well as for long-term mutual fund investors.

In January, Invesco executive James Lummanick told Cunningham in a memo that the firm “has increased its business risk by granting frequent exceptions to its prospectus policy (effectively changing the policy) without notice to shareholders.”

Lummanick, the firm’s chief compliance officer, wrote in the same memo that while “this waiver benefits market timers, it may not be the same thing as acting ‘in the best interests of the fund and its shareholders.’ “