The company’s pacts with the US Securities and Exchange Commission (SEC) and New York Attorney General Eliot Spitzer were the latest in more than a dozen similar agreements by mutual fund companies since late 2003 involving alleged trading abuses such as market timing and late trading, according to Reuters.
“With this agreement, virtually the entire mutual fund industry has now sworn off improper trading practices and agreed to compensate investors who were harmed,” said Spitzer. Three Federated affiliates agreed to give up $27 million in ill-gotten gains and pay a $45 million civil penalty under the SEC pact, said the investor protection agency.
Under its agreement with Spitzer, Pittsburgh-based Federated said it will also cut the fees it charges certain mutual funds by $4 million per year over the next five years. As previously reported in 2004, Federated has already paid approximately $8 million to certain funds as determined by an independent consultant
The SEC said that two Federated affiliates “committed securities fraud” by approving — but not disclosing to funds’ shareholders or funds’ boards of trustees — three market timing arrangements reached in the first half of 2003 (See Federated Concludes Internal Fund Trading Review ).
Canary Capital, a hedge fund involved in many market timing cases, played a role in the Federated matter, the SEC said. Canary, run by financier Edward Stern, in the first half of 2003 received from Federated undisclosed “timing capacity” in several equity funds in exchange for making long-term investments in a Federated fund, the SEC said.
Fifty-year-old Federated manages more than $207 billion in assets in 138 equity, fixed-income and money-market mutual funds, as well as separately managed accounts.