Dec. 3–Powerful US market regulators last night formally accused Invesco Funds Group, an American subsidiary of Amvescap, and four of IFG’s top executives of allowing “massive” fraudulent trading inits shares.
New York attorney general Eliot Spitzer and the US Securities and Exchange Commission launched a civil action claiming that IFG bosses, including chief executive Ray Cunningham, allowed “favoured” investors to indulge in “market timing” in shares in its funds amounting to $900 million (UKpound 520 million) this year. Spitzer claimed that “typical” investors in IFG funds lost “millions of dollars” as a result.
In a controversy increasingly spilling out beyond America, Spitzer and the SEC accused three other executives of “approving” the trading.
“Top managers knew market timing was harming buy-and-hold investors, but they condoned and facilitated it because it was a lucrative source of management fee revenues,” said Spitzer.
IFG is the second fund with UK links to be drawn into US investigations. Last month, two founders of Old Mutual’s Pilgrim Baxter subsidiary were charged with allowing favoured clients to make inappropriate trades.
Market timing involves investors, often hedge funds, trading in and out of mutual funds that set their share price once a day. While not illegal, it is frowned on by regulators. The Financial Services Authority considers it “against the ethos of the mutual funds industry.”
Amvescap fell 14 1/2 pence to 403 1/2 pence and fell further in New York.
The fund manager, chaired by Charles Brady, said “We believe these actions are not merited. IFG tried in good faith to identify and curb harmful market timing activities.” It said it had tried to control some traders by restricting them to certain funds, and had cut off relationships with others.
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