NEW YORK (HedgeWorld.com)?Janus Capital identified special deals with 12 clients that resulted in frequent trades in five Janus mutual funds despite the company?s policy to discourage such trading, according to a statement by chief executive Mark Whiston.
The company promised to take steps to minimize arbitrage opportunities, which were once a boon for some hedge funds.
Two of the five affected funds, Janus Mercury and High-Yield, were mentioned in the complaint by New York State Attorney General Eliot Spitzer against hedge fund manager Edward Stern?s Canary Capital Partners . The other three funds, Janus Worldwide, Enterprise and Overseas, previously were not named in this connection.
Besides Canary, other hedge funds also could have had deals allowing them to frequently trade some Janus shares. Janus did not identify the 12 favored customers. Only four of these clients actually traded, and the arrangements now have been terminated, Mr. Whiston explained. Mr. Spitzer?s office and the U.S. Securities and Exchange Commission have asked a number of hedge fund managers to provide information about mutual fund trades.
Market timing of mutual fund stocks is not illegal, and there are funds that explicitly allow it. But many discourage it because it can impose costs on long-term shareholders. Some Janus executives might have thought that it is allowed under fund prospectuses.
?While Janus has numerous policies and procedures in place to deter market timing activity, it appears that a few employees believed that limited, controlled market timing was permitted by the prospectus language and was not harmful to the funds or their shareholders,? Mr. Whiston said in the statement.
Some of these people no longer work for Janus. The firm said it is investigating whether current employees acted in good faith.