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Janus Says It Stopped Market Timing

October 01, 2003|Josh Friedman | Times Staff Writer

Scandal-rocked Janus Capital Management Inc. moved Tuesday to assure its mutual fund shareholders that it had clamped down on "market timing" abuses.

Denver-based Janus, one of four mutual fund companies named by New York Atty Gen. Eliot Spitzer in his Sept. 3 complaint against the Canary Capital Partners hedge fund, said its internal review had discovered 12 "discretionary arrangements" allowing timing -- the kind of frequent trading that can hurt long-term shareholders -- but that they all had been terminated. The deals for select clients netted Janus about $1 million, the firm said.

In announcing a settlement with Canary and an industrywide probe of mutual fund trading procedures, Spitzer said market timing and illegal after-the-bell trading could be so widespread as to cost U.S. investors billions of dollars a year.

In Tuesday's letter to shareholders, Janus Chief Executive Mark Whiston stressed that only four of the 12 customers actually engaged in frequent trading, which the firm defines as at least four trades in and out of a fund in a year. The rapid-fire trading occurred at five retail funds -- Janus Mercury, Janus Worldwide, Janus Enterprise, Janus High-Yield and Janus Overseas -- and two broker-sold Advisor funds -- Janus Advisor Worldwide and Janus Advisor International Growth -- Whiston said.

Whiston said Janus would repay its management fees earned from the deals directly to the affected funds, and he reiterated that individual investors would be reimbursed if an outside audit finds that they were harmed by the short-term trades.

Whiston said "it appears" that "certain employees central" to the market timing arrangements have left the firm, adding that the review was ongoing and that if others were found to have acted in bad faith, "we will take appropriate action."

Four of the five retail funds involved have had manager changes this year as Janus was hit by several high-profile defections, but spokeswoman Shelley Peterson said those departures were unrelated to the timing allegations.

Whiston declined to be interviewed. "Based on our internal review to date," Peterson said, "we believe the current portfolio managers of the affected funds did not approve the frequent trading."

Peterson acknowledged that Janus saw an increase in shareholder redemption activity immediately after Spitzer's initial announcement but noted that the firm's daily average assets under management rose to $151.5 billion in September from $149.4 billion in August, based on data through Monday. That indicates redemptions have leveled off.

In trading on the New York Stock Exchange before the letter was issued, Janus' stock rose 31 cents to close at $13.97.

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