Janus unit settles market-timing charges with SEC

A subsidiary of U.S. mutual fund giant Janus Capital Group Inc. has agreed to pay US$100 million to settle fraud charges brought by the Securities and Exchange Commission.

Janus Capital Management LLC (JCM) today agreed to disgorge US$50 million and pay civil penalties of US$50 million to settle the allegations that it entered into undisclosed “market timing” agreements with 12 investment entities.

Janus has neither admitted nor denied wrongdoing in the settlement.

JCM also consented to a cease-and-desist order and a censure, and agreed to undertake certain compliance and mutual-fund governance reforms.

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.

Stephen 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.”

The enforcement action was been coordinated with The Office of the New York Attorney General, The Office of the Colorado Attorney General and the Colorado Division of Securities.