A US COMPANY owned by Amvescap, the FTSE 100-listed fund manager, is expected to be charged with improper trading, the latest casualty in the mutual funds scandal.
New York Attorney General Eliot Spitzer and the Securities and Exchange Commission are also expected to charge executives at Invesco Funds Group with allowing hedge funds to execute ” market timing” trades.
Market timing is a form of rapid trading in and out of fund shares that regulators say has cost longterm investors millions.
Reports said charges could be filed as early as today. IFG would be the second UK-related investment-group to be charged, following- last week’s charges against Pilgrim Baxter Associates, owned by Old Mutual.
Amvescap said IFG had nothing to fear. “IFG has not engaged in any wrongful conduct,” said Douglas Kidd, a spokesman for Amvescap. “Any charges that may be filed against IFG or its employees will be vigorously contested.”
Although market timing is not illegal, the regulators are expected to claim that fund companies breach their fiduciary duty if they discourage market timing publicly through their prospectuses, but allow certain favoured clients to engage in it.
IFG has responded to regulators’ allegations in a so-called Wells submission to the SEC. The company defended its actions with facts, information on industry practices, and public policy considerations that demonstrate compliance with its legal obligations and duties to its clients.
However, regulators are growing impatient with companies hiding behind claims that they have stuck to the letter of the law.
The SEC is expected to propose reforms tomorrow, including a stipulation that all trades in fund shares must be completed by a strict cut-off time of 4pm. That is the time that funds price their shares once a day. This would end the problem of late trading in fund shares. But the SEC would need other rules to prevent market timing, in which clients or fund managers take exploit time differences between markets in different time zones.
Meanwhile, law firm Carr Korein Tillery has launched a lawsuit against several mutual fund companies, claiming that they have failed to use fair value pricing to protect their investments. Carr Korein Tillery was one of the law firms that secured a $10 billion (5.8 billion) legal settlement against the US tobacco industry.
