FUND FLOW WOES

NY POST ^ | October 18, 2003 | PAUL THARP

[Liz]

Angry investors are yanking billions out of mutual funds being probed for improper trading that's stacked against them.

At least four of the 11 funds being investigated by New York Attorney General Eliot Spitzer were hit with significant withdrawals in the past month since the scandal first erupted - totaling $7.9 billion in withdrawals.

[dennisw]

Headlines


October 15, 2003 05:30 PM US Eastern Timezone

Cohen, Milstein, Hausfeld & Toll, P.L.L.C. Announces Lawsuit on Behalf of Investors in Janus Mutual Funds

WASHINGTON--(BUSINESS WIRE)--Oct. 15, 2003--The law firm of Cohen, Milstein, Hausfeld & Toll, P.L.L.C. has filed a class action lawsuit on behalf of purchasers of several Janus Mutual Funds, including the Janus Mercury Fund (JAMRX), Janus High-Yield Fund (JAHYX), Janus Worldwide Fund (JAWWX), and Janus Core Equity Fund (JAEIX) between October 1, 1998 and September 2, 2003, inclusive (the "Class Period"), in the United States District Court for the Southern District of New York.
In addition, the following funds may have been effected by the conduct alleged in the above class action lawsuit:

Janus Fund (JANSX)
Janus Enterprise Fund (JAENX)
Janus Olympus Fund (JAOLX)
Janus Global Technology Fund (JAGTX)
Janus Orion Fund (JORNX)
Janus Twenty Fund (JAVLX)
Janus Venture Fund (JAVTX)
Janus Global Life Sciences Fund (JAGLX)
Janus Global Value Fund (JGVAX)
Janus Overseas Fund (JAOSX)
Janus Balanced Fund (JABAX)
Janus Growth and Income Fund (JAGIX)
Janus Special Equity Fund (JSVAX)
Janus Risk-Managed Stock Fund (JRMSX)
Janus Mid Cap Value Fund (JMCVX, JMIVX)
Janus Small CapValue Fund (JSCVX, JSIVX)
Janus Federal Tax-Exempt Fund (JATEX)
Janus Flexible Income Fund (JAFIX)
Janus Short-Term Bond Fund (JASBX)
Janus Money Market Fund (JAMXX)
Janus Government Money Market Fund (JAGXX)
Janus Tax-Exempt Money Market Fund (JATXX)


The complaint charges Janus Capital Group Inc., and Janus Capital Management, LLC with violating the Securities Act of 1933 and common law breach of fiduciary duties in return for substantial fees and other income for themselves and their affiliates. The Complaint alleges that during the Class Period, the Janus Funds and the other defendants engaged in illegal and improper trading practices, in concert with certain institutional traders, which caused financial injury to the shareholders of Janus mutual funds. According to the Complaint, the Defendants surreptitiously permitted certain favored investors, including Canary Capital Partners, LLC and Canary Investment Management, LLC (collectively, "Canary") to illegally receive the prior day's price for orders placed after 4 p.m. This allowed Canary and other mutual fund investors who engaged in the same wrongful course of conduct to capitalize on post 4:00 p.m. information, while those who bought their mutual fund shares lawfully could not.

The complaint further alleges that defendants permitted Canary and other favored investors to engage in "timing" of the Janus Funds whereby these favored investors were permitted to conduct short-term, "in and out" trading of mutual fund shares, despite explicit restrictions on such activity in the Janus Funds' prospectuses.

The Complaint arises from an investigation into widespread abuses in the mutual fund industry. Similar allegations have been brought regarding mutual funds of Bank of America and its Nations Funds, including the Nations Convertible (NCIAX), Nations International Equity(NITRX), and Nations Small Cap (NSVAX) Funds; Bank One Corp. and its One Group family of mutual funds, including the International Equity Index Fund (OEIAX) and Diversified International Fund (OGDCX); and Strong Capital Management and its Strong family of mutual funds, including the Strong Growth 20 Fund (SGRTX), Strong Growth Fund (SGRAX), Advisor Mid Cap Growth Fund (SMDCX), Strong Large Cap Growth Fund (STRFX), and Strong Dividend Income Fund (SDVIX).

If you purchased or acquired any of the above Janus Mutual Funds during the Class Period, you may, no later than November 4, 2003, move the court to be appointed as Lead Plaintiff. There are certain legal requirements to serve as Lead Plaintiff.

Any member of the purported class may move the court to serve as Lead Plaintiff through counsel of their choice or may choose to remain an absent class member. Your ability to share in any recovery is not, however, affected by the decision whether or not to serve as Lead Plaintiff. To be a member of the class, you need not take any action at this time.

Cohen, Milstein, Hausfeld & Toll, P.L.L.C. has significant experience in prosecuting investor class actions and actions involving securities fraud. The firm has offices in Washington, D.C., Seattle, New York and Chicago, and is active in major litigation pending in federal and state courts throughout the nation. You may visit the firm's website at

The firm's reputation for excellence has been recognized on repeated occasions by courts which have appointed the firm to lead positions in complex multi-district or consolidated litigation. Cohen, Milstein, Hausfeld & Toll, P.L.L.C. has taken a lead role in numerous important cases on behalf of defrauded investors, and has been responsible for a number of outstanding recoveries which, in the aggregate, total in the billions of dollars.

If you have any questions about this notice or the action, or with regard to your rights, please contact either of the following:

Steven J. Toll, Esq.

Mary Ann Fink

Cohen, Milstein, Hausfeld & Toll, P.L.L.C.

1100 New York Avenue, N.W.

West Tower - Suite 500

Washington, D.C. 20005

Telephone: (888) 240-0775 or (202) 408-4600

E-mail: stoll@cmht.com or mfink@cmht.com

Contacts


Cohen, Milstein, Hausfeld & Toll, P.L.L.C.
Steven J. Toll, stoll@cmht.com
Mary Ann Fink, mfink@cmht.com
888-240-0775 or 202-408-4600



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[dennisw]

Former mutual fund executive pleads guilty in trading probe

MICHAEL GORMLEY, Associated Press Writer Friday, October 17, 2003



(10-17) 08:26 PDT ALBANY, N.Y. (AP) --

A former mutual fund executive pleaded guilty to a felony for trying to cover up improper trading of mutual funds, the latest in a widening investigation of industry practices prosecutors say cost investors billions of dollars.

James P. Connelly Jr., former vice chairman and chief mutual fund officer at Fred Alger & Co., went as far as appointing an employee to serve as Alger's "timing police," to bust investors caught making short-term, in-and-out trades without his permission, the Securities and Exchange Commission said. The practice, known as "market timing," constituted fraud, as it was not disclosed to Alger fund shareholders, the SEC said.

Connelly pleaded guilty Thursday in state Supreme Court in New York to tampering with physical evidence and agreed to pay a $400,000 civil penalty to settle related charges by the SEC. Connelly faces up to four years in prison when sentenced Dec. 17. Connelly, 40, of Hoboken, N.J., also is barred from the industry for life.

New York Attorney General Eliot Spitzer said Connelly deceived his firm's lawyers by withholding documents and directing employees to delete some e-mails subpoenaed by investigators. The indictment said Connelly also tried to conceal trading arrangements between his firm and Veras Investment Partners, a Texas hedge fund.

Connelly is the first mutual fund executive charged in the investigation. Two traders at other companies have been charged.

The SEC said Connelly permitted more than a dozen select investors to "time" trades in Alger funds, a practice the company did not disclose to investors in its fund prospectuses. In return, the investors agreed to keep substantial assets in Alger funds.

Market timing allows investors to exploit changes in prices and can hurt other mutual fund shareholders by diluting the value of their shares. Many funds prohibit the practice.

"By approving timing arrangements with select investors, Mr. Connelly put his own firm's bottom line ahead of the interests of the fund shareholders he was entrusted to protect," SEC enforcement director Stephen Cutler said. "Such conduct is a fundamental breach of an investment adviser's fiduciary's duties and warrants tough sanctions."

In a statement late Thursday, Alger President Daniel Chung said Connelly was suspended Sept. 29. He was fired last week after an internal investigation turned up evidence that led to Thursday's arrest, Chung said.

"Mr. Connelly's misconduct was completely out of character for this firm and the personal commitment we made to the government to be fully cooperative," Chung said. "Fortunately, we believe all documents were preserved."

On Friday, Alger announced it was banning the practice of market-timing from its funds, with Chung saying that the firm wanted to "assure that all mutual fund investors are on the same level playing field -- no matter how big or small they are."

Connelly's home telephone number wasn't available.

Veras confirmed Thursday it had received subpoenas Spitzer and the SEC and said it is cooperating.

"The scope of the investigation into illegal trading practices in the mutual fund industry continues to expand," Spitzer said. "Any obstruction of this investigation will be dealt with swiftly."

On Sept. 3, Spitzer accused hedge fund Canary Capital Partners LLC of illegal trading involving Bank of America, Janus, Bank One Corp. and Strong Financial Corp. funds. The same day, Canary Capital Management and its managers agreed to pay $30 million in restitution for profits generated from improper trading, plus a $10 million penalty to settle Spitzer's allegations. The hedge fund neither admitted to nor denied wrongdoing in the settlement.

Earlier this month, Steve Markovitz, a former broker with Millennium Partners hedge fund, pleaded guilty to a felony charge for illegal late trading of mutual fund shares.

Spitzer has also charged a former Bank of America broker, Theodore Sihpol III, with larceny and securities law violations in connection with the Canary case. Sihpol has pleaded innocent.

Merrill Lynch & Co., Alliance Capital Management Holding LP, and Prudential Securities have suspended or fired nearly two dozen employees believed to have engaged in market timing or illegal late trading.

Late trading involves allowing an investor to trade funds at the 4 o'clock prices hours after the market closed. Such arrangements allow the investor to cash in on after-hours news ahead of other investors, who at that hour would be forced to chance buying at the next day's closing price.

Spitzer said the practices costs investors billions of dollars.

[Beck_isright]

Pinging the usual suspects.

Boy did I predict this right two months ago when this started.

[arete]

Boy did I predict this right two months ago when this started.

Money attracts criminals like cheese attracts mice. I'm surprise that this isn't getting more media attention.

Richard W.

[Beck_isright]

I think it will get more media attention as it progresses up the food chain. Spitzer is cracing heads and there are more arrests imminent per his las CNBC interview. I think this could be the death knell for a large fund or two. I wonder how they will cover these massive withdrawls and what will be the impact on the hedge funds.

[sarcasm]

Money attracts criminals like cheese attracts mice.

How dare you use a pejorative term such as criminal - don't you know that they are now called ethically challenged individuals?

[arete]

They can be as challenged as they want as long as they are behind bars.

Richard W.

[Eric in the Ozarks]

I have a small chunk of my retirement at Strong. FINALLY, for the last couple of quarterly statements, its growing again.

[SierraWasp]

Thank you for posting this. If you think of it, next time ping me, if you don't mind. Thanks!

[Major Matt Mason]

First, I will freely admit that I don't have the depth of knowledge of the financial markets to know if what is being described in this article is true lawlessness. Wall Street is a convenient target in the lousy economy of the past couple of years, but, at the same time, there are companies that have certainly been deserving of the added scrutiny.

I will say, though, that, as a resident of NY state, I am highly suspicious of any governmental investigations that have Eliot Spitzer's name attached to them. Spitzer is that most dangerous of people, an ambitious liberal, and like fellow New Yorker Chuck Schumer, Spitzer has never met a camera or microphone he doesn't like. Spitzer may well be onto something in this investigation, but, as is the case with anything a liberal does, you have to wonder what the real motives are behind the actions.

[Liz]

True about Spitzer's raw ambition. He's following in Rudy's footsteps--going after Wall Street--and remember that almost all of Rudy's indictments and convictions were overturned. He did nail Milkin and Boesky who both served time.

However, if mutuals allowed insiders to trade without informing shareholders, that is prosecutable. Most people lay their money out with the understanding it's a level playing field and nobody is getting privileged information.

Of course we know it happens anyway, that insiders protect each other's interests. But when it does come to light, it should be prosecuted.

[Beck_isright]

"I have a small chunk of my retirement at Strong. FINALLY, for the last couple of quarterly statements, its growing again."

Are you going to cash it in at some point before the fund goes under because the company's leadership is in jail?

[Beck_isright]

"First, I will freely admit that I don't have the depth of knowledge of the financial markets to know if what is being described in this article is true lawlessness. Wall Street is a convenient target in the lousy economy of the past couple of years, but, at the same time, there are companies that have certainly been deserving of the added scrutiny."

Educate yourself.
Even watch CNBSC.
If you don't recognize a crook, then you're going to get screwed with your own money. Spitzer and a few others are all that have been standing up for the investor. But if you don't care, then watch 32 redux.

[Eric in the Ozarks]

I don't think Richard Strong is going to jail for what one or two stock traders did while trading off hours. I'm going to stay in.

[Beck_isright]

It's not one or two stock traders. It's almost all of the mutual funds and large investment houses, including the banks. There is going to be a shake out in this industry which has been needed for years.

[Tauzero]

"I'm surprise that this isn't getting more media attention."

It'll get attention after the market drops a ways. Then it'll suddenly become "bad news" and blamed for all sorts of things.

After which the markets will rise, naturally. ;)