Washington, D.C., Dec. 1, 2005 – LAWFUEL – The Law News Network – The Securities and Exchange Commission announced settled enforcement proceedings against American Express Financial Corporation, now known as Ameriprise Financial, Inc. (AEFC), a registered investment adviser headquartered in Minneapolis, Minn., related to allegations that AEFC acted contrary to prospectus disclosures when it allowed certain shareholders to market time the mutual funds it advised, the American Express Funds (AXP Funds) when the AXP Funds’ prospectus disclosures expressly prohibited market timing.
As part of its settlement with the Commission, AEFC will pay $15 million in disgorgement and civil penalties, all of which will be placed in a Fair Fund for distribution to certain shareholders of the AXP Funds. AEFC also agreed to certain undertakings, including making annual presentations to its Board of Directors and the AXP Funds’ Boards of Directors about the adequacy of its policies and procedures on market timing.
The Commission’s Order finds that in January 2002 AEFC changed the prospectus disclosures for the AXP Funds to specifically prohibit market timing. Despite this express prohibition against market timing, AEFC still permitted certain market timers to continue market timing the AXP Funds for an additional time period that lasted approximately six to eight months. In addition, after changing the AXP Funds’ prospectus disclosures, AEFC did not put in place any procedures to monitor or prevent employees of AEFC and related companies from market timing the AXP Funds through their 401(k) accounts or disclose to investors that there were no such procedures until October 2003. Finally, even after anti-market timing language was added to the prospectuses of the variable annuity products sold by AEFC in May 2002, AEFC allowed a known market timer to continue to market time these variable annuity products until October 2003 without disclosing this exception to other investors.
Merri Jo Gillette, Regional Director of the Commission’s Midwest Regional Office, said, “By failing to inform investors that it deviated from the AXP Funds’ prospectus disclosures in allowing certain known market timers to continue trading in and out of the funds it advised, AEFC ignored its responsibility to treat all fund shareholders fairly and honestly.”
In addition to the $15 million payment, AEFA has agreed to be censured and to cease and desist from committing or causing violations of Sections 206(1) and 206(2) of the Investment Advisers Act of 1940 and Section 34(B) of the Investment Company Act of 1940. The Commission’s Order further requires AEFC to comply with certain undertakings. AEFC has consented to the issuance of the Commission’s Order without admitting or denying the findings contained therein.
The Commission’s action was filed contemporaneously with a related action by the Minnesota Division of Securities.