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Thursday, August 19, 2004 - Page updated at 12:00 A.M.
SEC votes to ban directed brokerage by mutual funds
By JUDITH BURNS
SEC Chairman William Donaldson said the practice of directed brokerage "presents opportunities for abuse" that can benefit fund managers and brokers at the expense of fund shareholders.
Mutual funds will still be able to use selling brokers to execute trades under the new SEC rule, but must have policies and procedures in place to preclude "quid pro quo" arrangements that pose conflicts.
"Prohibiting directed brokerage makes sense," said SEC Commissioner Harvey Goldschmid. Although the SEC had previously allowed the practice, Goldschmid said "putting it behind us is just the right thing to do."
The changes target a long-standing SEC rule that allows funds to pay brokers for marketing and distribution, through so-called 12b-1 fees.
Under the new ban, mutual funds may not use 12b-1 fees to compensate brokers for promoting or selling fund shares by directing brokerage trading to that broker.
Janus Capital agrees to hefty settlement
DENVER Janus Capital said yesterday it has finalized a $226.2 million settlement with state and federal regulators over improper-trading allegations, part of a scandal sweeping the $7 trillion mutual-funds industry.
Janus will pay $100 million to investors $50 million in restitution and $50 million in civil penalties and reduce the fees it charges investors by $125 million over five years.
The Denver-based company will pay $1.2 million to the Colorado attorney general's office for investor education, future enforcement and attorney's fees. It also will institute measures to guard against future problems.
The announcement finalized an agreement tentatively reached in April between Janus and the SEC, and regulators in Colorado and New York.
SEC Regional Director Randall Fons said it was an equitable settlement, and that Janus executives have been cooperative.
"This closes the book with respect to Janus, the entity," he said. "Our investigation into activities at Janus is continuing."
Fons declined to be more specific. Janus spokeswoman Shelley Peterson declined to comment yesterday.
In a May regulatory filing, Janus said the SEC still is looking into agreements between Janus and its brokers.
Market timing is 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 companies that officially forbade the practice but made exceptions for certain clients were guilty of fraud.
The Associated Press
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