Nov. 26, 2003 — Federated Investors (FII) said it has uncovered several instances in which its employees made arrangements with customers that permitted frequent trading to occur as part of its ongoing internal review into mutual fund trading practices.
Federated indicated that one of these arrangements involved Canary Capital Partners LLC, or other related entities, in trading that took place between late January and early July, 2003.
The funds involved were Federated American Leaders/A (FALDX), Federated Capital Appreciation Fund/A (FEDEX), Federated Equity Income Fund/A (LEIFX), Federated Kaufmann Fund/A (KAUAX), Federated Max-Cap Index Fund/I (FISPX), and Federated Stock Trust (FSTKX).
Canary initially invested approximately $30 million. Later, the amount invested ranged from $80 million to $125 million. The Federated funds listed above had combined average assets of approximately $12 billion during the period. When Canary’s money was not invested in equity funds, it was held in a Federated money-market fund.
From January 22 to July 2, 2003, Canary made forty-six “round trip” transactions between the money-market fund and the six domestic equity funds. The largest number of “round trips” in a single domestic equity fund was fifteen, eight of which occurred in June.
Federated said its investigation also revealed two other trading arrangements involving investors in Federated high-yield funds.