Principal Fesses Up to Employee Market-Timing

December 23, 2003 ( - An internal review of employee trading records at Principal Financial Group Inc uncovered evidence that some workers engaged in market-timing activities.

Most of the unearthed market-timing trades occurred between 1998 and 2000 and were predominately executed in Principal’s international 401(k) separate accounts.   The Des Moines, Iowa-based insurance company made the revelation in a US Securities and Exchange Commission (SEC) filing, according to a Dow Jones report.

The company said two portfolio managers who are no longer with Principal Financial engaged in market timing in their personal accounts within the funds they managed, however none of these suspect trading activities occurred since 2000.   Employees gained $175,000 through market timing of 401(k) separate accounts and $4,600 through market timing in mutual funds.   Even though “the majority of these employees (who engaged in market-timing) are no longer with the firm,” Principal said it would pay restitution to all impacted funds.  

With the announcement, Principal also declared that the company has not allowed any late trading or entered into any special arrangements to permit certain investors to engage in market-timing trades, allegations that have landed AllianceBernstein, Invesco and Putnam in serious legal hot water (See Alliance, Regulators Reach SettlementProsecutors: Invesco Engaged in Massive Market Timing SchemePutnam Scandal Outflows Continue ).   This was due to Principal imposing “progressively more robust standards and protections to further prevent improper market timing,” since 2000.   The company said in the SEC filing those standards applied to employees as well as customers.

In order to prevent future improper trading activities, Principal unveiled plans to implement a new valuation service for global equities in the first quarter of 2004. Principal also will start educating its employees about market timing and may increase redemption fees on mutual funds, the filing said.

Further, Principal announced the continued monitoring of several firms that are on its “watch list” due to alleged or acknowledged improper trading activities. The list includes:

  • AllianceBernstein
  • Invesco
  • Putnam Investments
  • Janus Capital Group
  • Federated Investors Inc.