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INVESCO Agrees to $325 Million Settlement of Market Timing Charges

September 8, 2004
There's more fallout from the mutual fund market timing probe. Colorado Attorney General Ken Salazar has announced a $325 million settlement with INVESCO Funds Group Inc.

Mutual Fund Market Timing • Prudential to Pay $600 Million for Market Timing • Waddell & Reed Settles Market Timing Case • Court Overturns Key Mutual Fund Investor Protection • SEC Missed Mutual Fund Abuses, GAO Finds • Mutual Fund Firms Fined $21 Million • Merrill Lynch to Pay $10 Million • Kaplan Brokers Plead Guilty to Late Trading • PBHG Agrees to Refund $120 Million • Fremont Investment Advisors Settles • INVESCO Settles Market Timing Charges with Colorado • Spitzer Spoils Bank of America's Party

Salazar had charged the Denver-based investment advisor permitted excessive market timing activity in a number of its mutual funds, including those trading in international and foreign securities.

INVESCO's sister firm, Aim Advisors, Inc., has reached a separate settlement, agreeing to pay $50 million to settle allegations that it too allowed market timers in some of its mutual funds. The companies will also be responsible for achieving $75 million in reduced fees charged to investors over a five-year period.

Finally, INVESCO will pay the Colorado Attorney General $1.5 million to be held in trust for reimbursement of attorney fees and costs and for consumer and investor education and future enforcement activities.

"This case represents one of the largest settlements with a mutual fund company over this market-timing scandal," Salazar said. "I believe this sends the strongest message yet that mutual fund companies will be held accountable for behavior that harms consumers and average shareholders."

Under terms of the settlements, INVESCO will pay $215 million in restitution and disgorgement to injured investors and $110 million in civil penalties. AIM will pay $20 million in restitution and disgorgement and $30 million in civil penalties. The combined restitution and penalties will be paid to injured mutual fund investors.

The large payment by INVESCO is reflective of the extensive market timing agreements allowed into the INVESCO mutual funds. Market timing is the rapid buying and selling of mutual funds by favored traders. Such trading harms long term holders of a mutual fund by increasing transaction costs and by diluting the value of their mutual fund shares.

Between early 2001 and mid-2003, INVESCO had express agreements with more than 40 market timers, called "special situations." These agreements allowed select investors to engage in improper, frequent short-term trading of mutual funds managed by INVESCO. These excessive exchanges and redemptions totaled more than $58 billion and diluted the returns of other fund shareholders. A I M also had agreements with market timers, although substantially fewer than INVESCO.

None of these market timer agreements were disclosed to fund shareholders. In fact, prospectuses for both companies expressly limited the number of exchanges that were permitted by investors.

Details on a final settlement remain to be worked out, but will include significant corporate governance and internal compliance reforms similar to those imposed in prior settlements with mutual fund advisers. "We want to ensure that these same abuses cannot occur in the future," concluded Salazar.

The agreements were reached in cooperation with the United States Securities and Exchange Commission, New York Attorney General Eliot Spitzer, and the Colorado Division of Securities headed by Securities Commissioner Fred J. Joseph. The agreements settle the consumer protection lawsuit filed by Attorney General Salazar's Office in December 2003 and securities litigation filed by New York Attorney General Spitzer's Office.

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