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Janus settles improper-trading case

/ Source: The Associated Press

Janus Capital Group struck a $225 million settlement with regulators Tuesday, the latest deal to emerge from the improper trading scandal sweeping the $7 trillion mutual funds industry.

Janus will pay $50 million in restitution to investors, $50 million in civil penalties and reduce the fees it charges investors by $125 million over five years, under the deal announced jointly by the attorneys general of Colorado and New York.

The Denver-based also company will pay another $1 million to the Colorado attorney general’s office to be used for investor education and future enforcement.

The industry scandal has resulted in criminal charges, subpoenas and scrutiny of dozens of fund companies.

Janus was under investigation for market timing — a type of rapid, in-and-out trading that can skim profits from long-term fund shareholders. The practice is legal, but Janus policies discouraged it.

Regulators say that companies that officially forbade the practice but made exceptions for certain clients are guilty of fraud.

Janus has acknowledged 10 market timing arrangements, all of which have been ended, and had said it will return to shareholders $31.5 million gained from market timing trading.

Last week, Janus CEO Mark Whiston resigned after less than two years on the job, though the company said his departure was not related to the scandal.

Earlier this month, Putnam Investments agreed to pay $110 million to settle allegations by the SEC and Massachusetts regulators of improper trading in the first big market-timing case brought in the scandal.

Other companies have settled for even larger amounts in market-timing cases, including MFS Investment Management and Alliance Capital Management, which agreed to relinquish $600 million in penalties and fee reductions.

Bank of America and FleetBoston Financial, which have merged, agreed to a $675 million settlement and the overhaul of its fund board of directors to resolve allegations of improper trading.