Janus, Invesco restitution is nearing

Abusive-trading payouts likely small for most

James Paton, Rocky Mountain News

Published May 16, 2007 at midnight

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Janus and Invesco mutual fund investors this fall should finally get a share of the combined $425 million the two companies agreed to pay to settle allegations of abusive trading, regulators said.

The Securities and Exchange Commission is close to making public the plans to divvy up the money to fund holders harmed by the activity, said Donald Hoerl, associate director of enforcement in Denver. Then, the effort to get the cash to investors can proceed.

The payouts would come roughly four years after Eliot Spitzer, then New York attorney general, unveiled an investigation into industry trading practices.

"The commission wants them out the door," said George Curtis, head of the SEC's regional office.

While the total dollar amounts are big, the checks for investors could be meager. Analysts have estimated each investor could receive as little as a few dollars.

In an unrelated case involving Qwest - which settled an SEC investigation by agreeing in 2004 to pay $250 million - aggrieved investors can expect to be paid in "mid-2007," regulators said.

The Janus, Invesco and Qwest payouts set to go out in the mail in coming months total nearly $700 million.

Curtis and Hoerl gave the update during a break at a securities conference in Denver on Friday.

Denver-based Janus Capital in 2004 agreed to pay $50 million in penalties, $50 million in restitution and $125 million in fee cuts after being accused of permitting favored customers to engage in rapid fund trading at the expense of long-term shareholders. The excessive trades can raise a fund's costs, chipping away at the profits for the buy-and-hold camp.

"Making the restitution payments continues to be a top priority," Janus spokeswoman Shelley Peterson said Tuesday.

For the now defunct Invesco Funds and sibling firm AIM Investments, the price to settle a similar trading case was $451 million. Invesco is poised to pay investors $325 million of that sum.

"We look forward to being able to update shareholders," AIM spokesman Ivy McLemore said.

The SEC alleged that Qwest engaged in a $3.8 billion accounting fraud between 1999 and 2002. Regulators claimed Qwest had propped up its stock price through accounting tricks, sham transactions and misleading disclosures.

They said Qwest executives enriched themselves along the way, by hundreds of millions of dollars.

The Denver company erased $2.5 billion in revenue from its 2000 and 2001 books, in a restatement completed in late 2003. The company neither admitted nor denied wrongdoing in settling the SEC civil-fraud charges.

In the fund group settlements, regulators required the firms to hire independent consultants to figure out the extent of the damage and to devise a plan to distribute the money. Determining who gets what has been a tricky and time-consuming exercise.

Christopher James, a University of Florida professor who served as the specialist for Janus, filed the distribution plan with the SEC more than a year ago.

James, in a preliminary report, found investors lost about $22 million because of the trading, far less than the amount Janus already had set aside. Janus has stressed James' analysis does not mean investors will get less than the $100 million promised.

Once the comment period has ended and regulators have reviewed the feedback, the SEC will OK the plan. The comment phase will last at least 30 days.

The SEC's Hoerl said he hopes fund holders will receive their checks in the fall.

Again, the payouts likely will be small. As Morningstar's Russ Kinnel wrote last year, most losses sustained in the period before Spitzer dropped the bomb in 2003 are attributable to the bear market, not improper trading.

Big pie, small slices

• The check is in the mail - almost. Aggrieved investors in the coming months finally will get a piece of the settlement money promised to them. Here are the distribution amounts for three different companies. The amounts are large, but for individual investors the distribution may be tiny:

Janus $100 million

Invesco $325 million

Qwest $250 million

Janus Capital Corp.

JNS: NYSE

$26.08

-10 cents

Staff writers David Milstead and Jeff Smith contributed to this report. patonj@RockyMountainNews.com or 303-954-2544

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