State and federal officials investigating the mutual fund industry have filed civil charges against Invesco Funds Group and its chief executive on Tuesday, saying the company’s top executives allowed dozens of investors to make improper trades. The charges against Invesco stand out from other cases in the mutual fund probe because of the extent to which regulators say trading abuses were allowed. Four of Invesco’s senior executives are accused of sanctioning special trading arrangements with as many as 60 hedge funds, broker-dealers and other investors. It is also the first case based solely on market timing, an abusive trading practice that can hurt long-term mutual fund investors but falls into a gray area of the law. The case could serve as a benchmark for similar charges expected to be filed against other mutual fund companies.
Amvescap, Invesco’s British-based parent, which has $345 billion in assets, said in a statement that neither Invesco nor its employees violated any laws. The company said it would “vigorously” contest the charges. “This is a company whose actions injured their shareholders, and we are consequently seeking appropriate remedies to protect the shareholders,” New York Attorney General Eliot Spitzer said in an interview. “This is the case that most firms should look at and say that we are in jeopardy of facing similar action.”
Officials allege that Invesco management allowed selected investors to profit from market timing — a rapid trading strategy in which investors profit from inefficiencies in how mutual funds are valued. Both Spitzer’s office and the U.S. Securities and Exchange Commission also charged Invesco Funds Group Chief Executive Raymond Cunningham. The charges filed by both Spitzer and the SEC include fraud and violation of fiduciary duties. New York is seeking damages, restitution and disgorgement of all the fees Invesco earned during the period, which totaled about $161 million, according to its complaint. The SEC also is seeking penalties and disgorgement, which included Invesco’s management fees and benefits like salary and bonuses earned by Cunningham. In a separate suit, Colorado Attorney General Ken Salazar said his office charged Invesco Fund Group with violating his state’s consumer protection act.