Colorado Attorney General Ken Salazar
David Zalubowski  /  AP Photo
Colorado Attorney General Ken Salazar, front, holds up a copy of an agreement reached with Invesco Funds in a consumer protection case during a news conference in Denver on Tuesday.
updated 9/8/2004 9:35:59 AM ET 2004-09-08T13:35:59

Invesco Funds Group and its sister company agreed Tuesday to pay $376.5 million and surrender another $75 million in fees to settle allegations of improper trading, a deal that will send nearly all the money to investors harmed by the practice.

Denver-based Invesco will pay $325 million to resolve litigation alleging it permitted excessive market-timing in its funds, Attorney General Ken Salazar said. Its sister company, AIM Advisors Inc. of Houston, agreed to pay $50 million.

The money will go to investors in what Salazar called one of the largest settlements yet in the market-timing scandal that has swept the $7 trillion mutual funds industry over the past year.

"I believe this sends the strongest message yet that mutual fund companies will be held accountable for behavior that harms consumers and average shareholders," Salazar said.

Invesco also agreed to pay $1.5 million to Salazar's office for investor education, future enforcement and attorney's fees.

Amvescap, the London-based parent of the two companies, did not acknowledge wrongdoing under the settlements. It said it already has taken steps to better monitor trading activities and will hire an independent consultant to oversee distribution of the money to shareholders.

"We deeply regret the harm done to fund investors and have taken strong measures to prevent any recurrence," Amvescap chairman Charles W. Brady said in a statement. "With these agreements, we rededicate our firm to maintaining the highest ethical standards."

The agreements resolved pending investigations by attorneys general in Colorado, New York and Georgia, and the Securities and Exchange Commission. They are subject to a final approval of the full SEC and a final consent decree signed by all parties.

The settlement does not include former Invesco CEO Raymond Cunningham, who has been charged with fraud by the SEC for allegedly allowing certain customers to market-time Invesco funds.

Regulators had accused the company of an elaborate scheme that defrauded shareholders by systematically seeking out wealthy investors for market-timing arrangements, quick in-and-out trading that is legal but prohibited by many funds because it can skim profits from longer-term shareholders.

The SEC and state regulators accused Invesco and Cunningham of allowing certain clients to engage in market timing even though its policies discouraged it. They had sought the return of nearly $161 million in fees, as well as unspecified civil penalties.

The prospectuses for Invesco funds restricted fund trades to four a year, but authorities said big clients were exempted as part of a "Special Situations" program that became an increasing part of Invesco's strategy in 2001 as the market was falling.

According to Salazar, Invesco had more than 40 such agreements under the program between early 2001 and the middle of last year — agreements that totaled more than $58 billion and diluted the returns other shareholders.

Salazar said Invesco representatives initially said there were no damages to investors as a result of market timing but that view changed over time.

"As we moved forward through the investigation over the last nine months, it became apparent that the market timing activities at Invesco was, in fact, rampant," Salazar said.

AIM had similar agreements, Salazar said, but far less than Invesco.

Last month, three former Invesco executives were ordered to pay more than $340,000 to settle allegations that they allowed some clients to use the funds for market-timing.

In the past 12 months, several major fund complexes — including Alliance Capital Management and Bank of America Corp. — have paid hundreds of millions of dollars to settle improper trading charges. Fund executives, managers and traders have also been accused of wrongdoing.

Another Denver-based mutual funds company, Janus Capital Group, recently completed a $226.2 million settlement with state and federal regulators over improper trading claims. It will pay $100 million to investors, reduce the fees it charges investors by $125 million over five years and pay $1.2 million to the Colorado attorney general's office for investor education, future enforcement and attorney's fees.

The SEC said Janus allowed 12 entities to use marketing timing practices. Two accounts apparently were never funded. The practices have ended.

Copyright 2004 The Associated Press. All rights reserved. This material may not be published, broadcast, rewritten or redistributed.

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