Janus Reaches $225-Million Deal in Probe

Janus Capital Group Inc. on Tuesday reached a $225-million settlement with state and federal regulators over accusations it allowed abusive trading of its mutual funds.

Separately, Denver-based Janus posted a $19.3-million loss and said it would take a $59-million charge to cover settlement-related costs as it released its first-quarter results a day early.

Janus has suffered at least $13 billion in fund withdrawals since New York Atty. Gen. Eliot Spitzer named it in his complaint in September that launched an industry-wide probe.

The settlement is the fourth-largest to be reached in the investigations that have rocked the fund industry. Four other companies have agreed to pay $1.1 billion in fines, and several chief executives, including Janus’ CEO last week, have resigned because of the scandal.

Although the company still faces a judgment over class-action lawsuits being consolidated in Baltimore, the settlement is good for investors as it allows them to understand the financial effect on Janus, analysts said.

“It’s not a huge enough amount to make a big difference in long-term profitability,” said Rachel Barnard, an analyst with Morningstar Inc. She called the settlement a milestone, but the lawsuits will hang over the company’s share price.

“I don’t think it’s going to change investors’ opinions right away of Janus funds,” Barnard said of the settlement, echoing a comment other analysts have made.

Janus agreed to pay $50 million in civil penalties and $50 million in restitution and disgorgement to injured investors, and to reduce its fees by $125 million over five years, the Colorado attorney general’s office said in a statement.

Janus also settled with Spitzer’s office, the Securities and Exchange Commission and the Colorado Securities Division.

The probe focused on market timing, quick in-out trading that isn’t illegal but that most fund prospectuses prohibit.

Janus was accused of permitting certain investors to time its funds in exchange for investments from which it earned fees.

Janus prospectuses said its “funds are not intended for market timing or excessive trading,” and the company outlined a series of measures to deter market-timing activities, the statement said.

“This settlement continues our efforts to level the playing field for mutual fund investors,” Spitzer said in the statement. “Market timers will no longer be given special access and permitted to profit at the expense of long-term investors.”

Janus also agreed to pay $1 million to be held in trust by the Colorado attorney general to be used for consumer and investor education and for future enforcement activities.

Specific fee reductions will be determined on a fund-by-fund basis by the independent trustees of respective Janus funds, in consultation with the New York attorney general’s office, Janus said.

Janus shares gained 44 cents on the New York Stock Exchange, to $15.99.

Barnard said she was surprised by the fee reductions, as Janus is a low-cost shop. Other companies that have reduced their fees charged more than the industry average, she said. The fee cuts will hamper Janus’ competitiveness, she said.

Considering recent management changes at Janus and any new investor-friendly policies, Barnard said she didn’t expect a big turnaround in the company anytime soon.

Janus said its loss amounted to 8 cents a share, which contrasted with earnings of $38.6 million, or 17 cents, last year.

Barnard said that excluding the charge, Janus would have earned 17 cents a share, a penny shy of Wall Street estimates.

Mutual funds are the primary vehicle for retirement savings and college funds for 95 million Americans -- half of all households.

Earlier this month, Putnam Investments agreed to pay $110 million to settle allegations of improper trading in a case that launched the market-timing scandal.

Alliance Capital Management will relinquish $600 million, and Bank of America Corp. and FleetBoston Financial Corp., which have merged, agreed to a $675-million settlement.

Associated Press was used in compiling this report.