Washington, D.C., Aug. 18, 2004 LawFuel – The Net’s best legal news, law news site– The Securities and Exchange Commission announced today a settled enforcement action against Janus Capital Management LLC (JCM), a registered investment adviser based in Denver, Colo., for entering into undisclosed market timing agreements with certain investors. The Commission ordered JCM to pay disgorgement of $50 million and civil penalties of $50 million, for a total payment of $100 million. JCM also consented to a cease-and-desist order and a censure, and agreed to undertake certain compliance and mutual-fund governance reforms.
Stephen M. Cutler, Director of the SEC’s Division of Enforcement, said, “The $100 million that Janus has agreed to pay and the significant reforms that it has agreed to implement reflect the seriousness with which the staff views market timing arrangements. We will continue to investigate these improper arrangements in an effort to hold all responsible parties accountable.”
Randall J. Fons, Regional Director of the Central Regional Office, added, “This settlement represents our view of the impropriety of the market timing arrangements entered into by Janus and the extent to which these undisclosed arrangements violated an investment adviser’s fiduciary duty to investors. This settlement will ensure compensation for all victims of the harm that resulted from these improper arrangements and prevent this misconduct from happening again.”
In the Order, the Commission found that:
· JCM negotiated market timing agreements with 12 entities pursuant to which these entities were permitted to market time certain Janus mutual funds. At the same time JCM entered into these agreements, the prospectuses for the funds being timed stated, or at least strongly implied, that JCM did not permit frequent trading or market timing in these funds.
· Some of JCM’s market timing agreements were entered into with the understanding that the market timer would make long-term investments, so-called “sticky assets,” in certain Janus mutual funds. In addition, JCM waived all redemption fees that would have otherwise been assessed against the market timers for their frequent trading activity.
· While the timing activity by the market timers caused dilution to the affected mutual funds, the market timing agreements financially benefited JCM in that JCM realized additional advisory fees from the timed funds and sticky assets under its management. Because of JCM’s financial interest in the increased assets under management, JCM had a conflict of interest with the Janus mutual funds subject to the market timing agreements. JCM failed to disclose the conflict of interest to the Board of Trustees and the shareholders of the affected mutual funds, thereby breaching JCM’s fiduciary duty to the mutual funds.
Based on this conduct, the Commission’s Order finds that JCM willfully violated Sections 206(1) and 206(2) of the Investment Advisers Act and Sections 17(d) and 34(b) of the Investment Company Act and Rule 17d-1 thereunder. JCM consented to the entry of the Commission’s Order without admitting or denying the findings.
This enforcement action has been coordinated with The Office of the New York Attorney General, The Office of the Colorado Attorney General and the Colorado Division of Securities.