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Post date: December 2 2003

Invesco Documents Show Secret Market Timing Arrangements

Attorney General Spitzer today announced civil charges against Invesco Funds Group and its chief executive officer for engaging in a massive mutual fund timing scheme.

The lawsuit was filed today in coordination with the Securities and Exchange Commission, which is also pursuing civil charges against the firm and its top management.

Spitzer's complaint against the Denver-based company includes documentary evidence linking the firm's top executives to undisclosed practices that caused millions of dollars in losses for typical investors.

The documents show that the company's CEO and others promoted arrangements that permitted market timing by favored institutional clients in return for infusions of assets that generated management fees.

"The evidence in this case speaks for itself," Spitzer said. "Top managers knew market timing was harming buy-and-hold investors but they condoned and facilitated it because it was a lucrative source of management fee revenues."

Spitzer's complaint details events dating from 2001 to the present and cites communications to and from top executives, including CEO Raymond Cunningham.

Internal documents obtained by Spitzer's office show that these individuals exempted certain favored institutional clients from the company's publicly-stated policy of limiting shareholders to four trades of a mutual fund annually.

The favored clients who had permission to engage in extensive market timing were referred to internally as "Special Situations" clients. They traded Invesco funds dozens of times during the year, generating huge profits for themselves while reducing profits and exacerbating losses for typical investors.

In one e-mail set forth in the complaint, a senior executive noted that: "I know <market timers> are costing legitimate shareholders significant performance ... This is not good business for us, and they need to go."

In another e-mail in the complaint, an executive wrote: "<Market timing> is killing the legitimate shareholders of <the Dynamics and Technology> funds."

In a company memo cited in the complaint, a compliance officer said that a fund that Invesco marketed to children as part of a special promotional program to encourage young investors was being "whipsawed by large dollar amounts of timing activity."

In response to communications expressing concern about excessive market timing, senior executives either did nothing, or arranged for "Special Situations" clients to reduce but not eliminate their market timing activities.

Market timing of Invesco funds it totaled approximately $900 million in assets in 2003. Extensive market timing was underway at Invesco until July, when the company received subpeonas from the Attorney General's office.

The Attorney General's lawsuit cites violations of New York's Martin Act, General Business Law and Executive Law. The suit seeks a halt to illegal mutual fund trading, disgorgement of fees, and fines and penalties on both the individuals and the corporation.

In a parallel action, the SEC today sued the company seeking damages and injunctive relief.

The Attorney General's case is being handled by David D. Brown, IV, Chief of the Attorney General's Investor Protection Bureau, with Assistant Attorney General Lydie Pierre-Louis.