Federated Investors Uncovers Late Trading In Funds

The first arrangement, which occurred in the summer of 2002, permitted investments of not more than $20 million, and resulted in a total of six “round trip” investments over approximately one year, with total net gains of approximately $1.7 million. The second arrangement occurred in April, 2002, and permitted investment of approximately $10 million, for not less than 15 days, and not more than four times per year.

The funds involved were Federated High Income Bond Fund/A (FHIIX) and Federated High Yield Trust (FHYTX), which had combined average assets of approximately $2.2 billion during the period.

Both of these arrangements were terminated during the course of Federated’s internal review. Federated has accepted the resignation of the two officers who met with Canary to set up the arrangements with the Canary entities.

In addition, Federated identified Veras Partners, an investment advisor, which made late trades by placing orders over the phone between 4:00 p.m. and 5:00 p.m. on fifteen occasions. In those instances, the trades were accepted by a group of employees who did not have a “sufficient understanding” of the circumstances under which trades could be processed after 4:00 p.m.

Federated added that has found no evidence that the company’s senior executives improperly traded in any Federated funds.

In a letter to shareholders, Federated’s President J. Christopher Donahue said the company is “committed to taking remedial actions when, and as appropriate, including compensating the funds for any detrimental impact these transactions may have had on them.”