DENVER (AP) — Janus Capital Group Inc. said Friday it will pay back $31.5 million gained from questionable mutual fund trading arrangements that have led to investigations by state and federalregulators.
Janus said it had not determined whether the money will be placed in funds affected by market timing, a strategy under which investors make quick in-and-out trades, or whether it will be given directly to shareholders.
Market timing isn’t illegal but many mutual fund managers say they don’t allow it because it may hurt profits for long-term shareholders.
“We believe this is appropriate compensation for the affected funds and their shareholders,” the Independent Trustees of the Janus funds said in a letter to shareholders.
The Denver-based company also announced tighter controls on mutual fund management, including naming an independent director as its chairman — a job that had been expected to go to CEO Mark Whiston.
Janus said none of the changes affects investigations by regulators and prosecutors, including the Securities and Exchange Commission, the New York attorney general or Colorado Attorney General Ken Salazar, who is in settlement talks with Janus.
Last fall, New York Attorney General Eliot Spitzer announced a settlement with the Canary Capital hedge fund and said it had improper trading agreements with Janus and three other fund groups.
Specifically, Spitzer said Janus allowed market timing against its own policies. Janus has not been charged.
The company also announced the results of an investigation into market timing by accountant Ernst & Young LLP, which found that 10 investors were allowed to trade more frequently than other investors between November 2001 and earlier this year.
Janus has said that anyone involved has since left the company.
The $31.5 million payback was determined by Ernst & Young, hired to determine the effect of market timing to shareholders and to recommend internal controls.
The money includes $22.8 million in net gains realized by market timers, $2.7 million that would have gone to other shareholders, $1 million in fees and $5 million in waived redemption fees.
Janus said about $25.5 million of the total amount will be included in fourth-quarter results along with other investigation-related charges.
Janus has made several changes to protect against mutual fund abuses, including eliminating the use of brokerage commissions to buy research or services from third parties, a practice known as “soft dollars.” The decision will raise Janus expenses by about $9 million annually, Janus said.
In addition, Janus appointed Steve Scheid, a member of the board, as non-executive chairman effective Jan. 1, scuttling a contract that had called for Whiston to be named chairman.
Under an amended contract, Whiston waived his right to become chairman and forfeited a cash severance payment of between $20 million and $23 million. His 2003 bonus and potential benefits were also slashed.
