Nov. 7–Denver-based Invesco Funds Group may be next on New York Attorney General Eliot Spitzer’s anvil to be pounded for alleged trading abuses.
If the hammer is coming down, the fund group said it hasn’t heard anything, other than from unidentified sources quoted in the national press.
“Invesco Funds Group is cooperating fully with the regulators’ review of the mutual fund industry,” said spokesman Ivy McLemore. “We have received no notice from the New York attorney general regarding any potential legal actions.”
Spitzer’s office asked Invesco to provide information in September, and Invesco launched its own internal investigation, which McLemore said is still underway.
A spokesman for Spitzer’s office declined to comment on whether Invesco faced any pending legal action or on another report that Spitzer is working on settlements with Janus Capital Group, Bank One, Bank of America and Strong Capital, groups initially investigated for cutting side deals with a New Jersey hedge fund that harmed investors.
One industry analyst said he wouldn’t be surprised to see the list of mutual funds that allowed market timing and late trading grow.
“Nothing surprises me anymore,” said Jeff Tjornehoj, research analyst with Lipper in Denver. “Market timing was more widespread than anyone had ever let on or believed.”
Invesco, a subsidiary of European money manager Amvescap Plc, runs sector funds, a narrowly focused investment that appeals to active investors who switch between industries.
Money manager Victor Vuskalns, founder of Tango Capital Management in Califon, N.J., said active traders once considered Invesco as hospitable, but that changed when Invesco became aligned with AIM Investments, a sister fund group based in Houston.
Vuskalns used Invesco funds to rotate among asset classes, including cash, a strategy that prevented his clients from suffering the double-digit losses that buy-and-hold investors had to swallow in the recent bear market.
“They want us to put our money in there and forget about it,” Vuskalns said. “Life is not a buy and hold.”
Vuskalns, who has reduced his holdings at Invesco from $3 million to $700,000, said he would be upset to learn Invesco gave more favorable treatment to large market timers, like hedge funds.
If Invesco did have market-timing agreements, it should lay out its dirty linen and promise restitution, a strategy Janus and others have taken, analysts said.
“Nothing positive can come from playing your cards close to the vest,” Tjornehoj said. “People are often looking for ways to justify leaving an underperforming fund company.”
In contrast, prosecutors should keep things close to the vest until they are ready to act, said Brad Lam, a former Securities and Exchange Commission attorney with a securities practice in Denver.
Leaks about pending actions aren’t an ethical way for prosecutors to proceed, he said, but another securities attorney added that they do serve a purpose.
“As a regulator you don’t have the resources to go after everything,” said David Marder, an attorney with Robins Kaplan Miller & Ciresi in Boston and the former assistant director of the SEC’s Boston office.
Media coverage serves to deter bad behavior, he said, while the grind of taking cases through the courts consumes resources without adding much to the overall results.
About 90 percent of SEC cases get settled, Marder said, and Spitzer will probably pursue a similar course of action.
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