The US Securities and Exchange Commission (SEC) also revealed in settlement papers filed for a civil case that much of Janus’s top management, including the former chief executive officer, knew about the market timing arrangement, the Wall Street Journal reported. The SEC papers finalize a preliminary agreement the Denver firm reached in April with the SEC and the attorneys general of New York and Colorado to pay $226 million to settle civil fraud charges that the firm improperly allowed market timing.
The federal regulators didn’t name the money manager in the documents, but unnamed sources quoted by the Journal identified him as Warren Lammert, who managed the high-profile Mercury Fund until his departure in March 2003. The top official who knew about it was identified as Mark Whiston, who resigned as chief executive in late April just before the firm reached a preliminary settlement with regulators.
Despite the settlement with the corporation, federal regulators continue to probe individual people involved in improper trading at Janus, according to the Journal’s sources.
The SEC settlement papers offers a new view about what people at the highest levels at Janus knew about the improper trading arrangements. In November 2001, Lammert introduced to Janus a New York-based hedge-fund adviser, Trautman Wasserman & Co., which eventually became the largest market timer in the firm’s funds, according to the Journal. Gregory Trautman, the hedge fund’s chief investment officer, had met Lammert through their charitable efforts to raise money to fight epilepsy.
The SEC complaint didn’t identify Trautman by name, but cited the “friendship” between a former Janus portfolio manager and an executive at the “largest timer” in Janus funds. Trautman hasn’t been charged with wrongdoing, but is under investigation, according to the Journal sources.
By the summer of 2003, the biggest timer had as much as $263 million invested in Janus and was being permitted to market time at least seven Janus funds, according to the SEC complaint. Those funds included Janus Mercury, Enterprise, Worldwide, High Yield, Overseas and two funds marketed primarily through financial advisers and to large investors, Janus Adviser Worldwide and Adviser International Growth.
Meanwhile, Whiston was aware of Janus’s agreements with market-timers, according to the SEC complaint, which says the CEO commissioned an internal review of market-timing in the firm’s funds in the fall of 2002. A report prepared after the study noted that Janus had made arrangements to allow market timing by select investors and recommended that they be terminated.
Federal and state regulators have been pursuing a wide-ranging mutual fund industry probe that has largely focused on market timing, late trading and certain sales practices.