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September 10, 2004 at 08:00 PM
DENVER (HedgeWorld.com)–In what may be one of the last of the super-size settlements tied to the mutual fund market-timing/late-trading scandal, AMVESCAP plc’s Invesco Funds Group Inc. and AIM Advisors Inc. mutual fund arms agreed Tuesday to a US$451 million settlement of market-timing charges.
Those civil charges were brought against Invesco Funds Group and four executives of the firm in late 2003 by the Securities and Exchange Commission and attorneys general in New York and Colorado. At the time, AIM Advisors was not charged. Subsequent investigation, however, revealed that the Houston-based firm entered into its own agreements with at least 10 market timers, including one unnamed hedge fund, according to a statement from the New York State Attorney General’s office.
As part of the agreements with the SEC and New York State Attorney General, Invesco Funds Group will pay US$215 million in damages, plus a US$110 million penalty. AIM Advisors will pay US$20 million in damages and a US$30 million penalty. Both firms also agreed to reduce their fees by a combined US$75 million over the next five years and reform their compliance procedures.
In a separate agreement with the Colorado State Attorney General’s Office, Invesco Funds Group will place US$1.5 million into a trust to be used to repay attorney fees and fund consumer education and future enforcement actions. Invesco Funds Group is based in Denver, and in January 2001 agreed to pay US$120 million to put its name on the Denver Broncos’ new football stadium. Neither firm admitted or denied guilt as part of the settlement. AMVESCAP, the parent of both AIM Advisors and Invesco Funds Group, is based in London.
“This case represents one of the largest settlements with a mutual fund company over this market timing scandal,” Colorado Attorney General Ken Salazar said in a statement. “I believe this sends the strongest message yet that mutual fund companies will be held accountable for behavior that harms consumers and average shareholders.”
The Invesco/AIM settlement is among the largest reached in the year-old market-timing and late-trading scandal. Bank of America Corp., Charlotte, N.C., in March agreed to pay US$375 million in penalties and restitution. In December, Alliance Capital Management LP, New York, agreed to pay US$250 million to settle market-timing charges, however the firm also agreed to a 20% cut in fees, which when added to the penalties and fines brought the total settlement to about US$600 million.
Last week, three former Invesco Funds Group executives–former Chief Investment Officer and portfolio manager Timothy J. Miller, former sales manager Thomas A. Kolbe and former Assistant Vice President for sales Michael D. Legoski–collectively agreed to pay US$340,000 in penalties as well as various suspensions in settling charges they helped market timers, including hedge fund Canary Capital Partners LLC, Secaucus, N.J., conduct market timing of Invesco funds. None admitted or denied wrongdoing.
Settlement talks continue with former Invesco Chief Executive Raymond R. Cunningham, who was charged in December along with Invesco Funds and Messrs. Miller, Kolbe and Legoski. Published reports indicated a resolution in that case could be close.
All of the cases revolved around allegations Invesco Funds Group and AIM Advisors allowed certain outside investors to market time mutual fund shares. Market timing involves rapid in-and-out trading in mutual funds to take advantage of short-term price fluctuations. Generally many mutual funds discourage the practice–and some prohibit it–because they say the costs of those trades in terms of lower fund performance and trading fees are passed on to long-term investors.
