Janus Paying $31.5 Million For Market-Timing Activities

December 19, 2003 (PLANSPONSOR.com) - Janus Capital Group Inc. has agreed to pay the market-timing piper to the tune of $31.5 million.

The restoration amount was determined by Ernst & Young LLP, which had been engaged by the Janus funds’ independent trustees to determine the impact of frequent trading on the funds and their shareholders, according to a news release.   The figures includes:

  • net gains of approximately $22.8 million realized by the discretionary frequent traders
  • approximately $2.7 million representing opportunity cost of those gains had they been available to the funds
  • management fees of approximately $1 million received by Janus Capital related to discretionary trading accounts
  • waived redemption fees of approximately $5 million.

The first two payouts will be disclosed in the company’s fourth-quarter results, along with other investigation-related charges.   The later two items were previously disclosed and reserved for the firm’s third quarter results.

Additionally, Ernst & Young recommended changes to “protect Janus funds’ shareholders from frequent trading and other potential mutual fund abuses in the future.”   These measures include:

  • revising prospectus language to more firmly discourage frequent trading
  • increasing redemption fees from 1% to 2% on the funds that currently impose redemption fees
  • more frequent portfolio disclosure
  • enhanced portfolio valuation techniques to discourage market timing
  • elimination of the practice of using brokerage commissions to purchase research products or services from third parties, a practice known as ” soft dollars.”

“Today’s announcement marks an important step in regaining the trust of our fund shareholders,” said Janus Chief Executive Officer Mark Whiston. “Although there is still much work to be done, particularly with respect to resolving these matters with the regulators, the fund Trustees and [Janus’] management team are working very hard to protect fund shareholders and deliver strong investment performance.”

The payment and changes though do not resolve investigations by the US Securities and Exchange Commission (SEC) or the attorneys general of Colorado and New York.  Janusexpects regulators to seek civil penalties and require the company to implement remedial actions. Janus said the company is in preliminary discussions with regulators to find ways to resolve the issues under investigation (SeeJanus Unearths Market Timing Arrangements).

Board Changes

Additionally, Janus’ Board of Directors took the opportunity to announce measures fthe irm is taking to strengthen its corporate governance initiatives.   Paramount among these is the appointment of independent director Steve Scheid as non-executive chairman, effective January 1, 2004. Scheid, formerly vice chairman of The Charles Schwab Corporation and president of the Schwab Retail Group from 2000 to 2002, succeeds Landon Rowland as chairman. Rowland, who is scheduled to step down as chairman of the board on December 31, 2003, will continue as a Janus director in 2004.

Also effective at the start of the New Year, the company’s boardappointed independent director Robert Burt to replace Scheid as chair of the Audit Committee. Scheid will continue to sit on the Audit Committee.   Further, t he Audit Committee will retain an independent auditor to perform the ongoing internal audit function for the Janus.