Invesco And Aim Settle Mutual Fund Timing Cases

Attorney General Spitzer today announced a $450 million settlement with two prominent mutual fund management companies to resolve charges that the companies permitted illegal market timing of their funds.

Under the agreement, Invesco Funds Group will pay damages of $215 million and a penalty of $110 million, and AIM Advisors will pay damages of $20 million and a penalty of $30 million. The two affiliated companies have also agreed to $75 million in fee reductions over the next five years, and adopt management reforms designed to strengthen compliance and protect investors.

"These sanctions and reforms should make it clear that regulators will respond aggressively when fiduciaries enrich themselves at the expense of their clients," Spitzer said.

The settlement was negotiated jointly by Spitzer's office, the SEC and Colorado state regulators, and resolves pending lawsuits against Invesco alleging that it entered into agreements known as "special situations" with mutual fund timers. The "special situations" resulted in billions of dollars of rapid-fire transactions in the Invesco funds, which damaged typical long-term investors.

The settlement also resolves charges that AIM entered into negotiated arrangements with at least 10 mutual fund timers, including at least one hedge fund, allowing the timers to trade in violation of the company's prospectus terms. The timing activity that AIM allowed resulted in millions of dollars of losses for AIM's legitimate investors.

Invesco and AIM have agreed to a number of reforms designed to help ensure that fees charged by the funds are negotiated at arm's length and are reasonable. These reforms include hiring a senior officer to ensure the reasonableness of fees charged to retail investors either through competitive bidding or an annual independent evaluation that considers factors including: the level of fees charged to institutional investors; the costs of providing services; and overall profit margins at Invesco and AIM. The senior officer will also take steps to ensure that relevant information on the calculation of fees is disclosed to the public.

Other reforms included in the agreements are a requirement that the chairman of the Invesco and AIM funds board of directors be truly independent, without any prior connection to the company, and new requirements for disclosure to investors of expenses and fees

Spitzer thanked the SEC and Colorado officials, including Colorado Attorney General Ken Salazar, with whom his office worked to coordinate settlement negotiations with Denver-based Invesco and Aim.

The matter was handled by Assistant Attorney General Roger Waldman, with assistance provided by Economist Hampton Finer of the Public Advocacy Division, under the supervision of David D. Brown, IV, Chief of the Attorney General's Investment Protection Bureau.


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