Janus Plans Reimbursements for Money Lost to Market Timing

Janus was also quick to note that market timing wasn't a Janus-only issue. "We've long viewed market timing as an industrywide problem involving both mutual funds and the many intermediaries with whom investors work," Whiston said. "Regardless, we have to do what's right for our fund shareholders."

Later in the release, Janus said for any efforts to restrict market timing to be effective, "these rules must apply to all mutual funds and intermediaries, as well as to the unregulated hedge fund industry."

Indeed, market timing is a rampant problem in mutual funds that steals money out of fund investors' pockets -- costing U.S. funds an estimated $4 billion a year. "There are managers out there who make their living on market timing," said Mercer Bullard, founder of fund-investor advocacy group Fund Democracy. When a hedge fund or some other investor tries to market time a fund, they exploit a loophole in the way funds are priced. Since a fund's net asset value, or NAV, is calculated once a day, traders can move in and make free money off the static NAV. (Click here for a story explaining the details of how this works.)

The key difference between the actions of the four companies named in Spitzer's complaint -- Janus, Bank One(ONE Quote), Strong and Bank of America(BAC Quote) -- and much of the mutual fund industry is that market timing is an industrywide problem that firms try to combat.

Many firms put systems in place to block market timing -- such as redemption fees, fair-value pricing and imposing trading limits. Other fund firms don't police market timing as aggressively. A handful of others, such as Janus, have opted to cut deals with market timers in which both sides profit. What did the fund firms get? Money from Canary parked in money-market funds, which means fatter fees paid to the firms.

These market-timing arrangements were never disclosed by Janus -- until the news release Friday night, two days after Spitzer's complaint.

"It's our hope that the measures we're announcing today will help resolve this situation in a way that recognizes the importance of the matter," Whiston said in the statement. "Most of all, we hope this action demonstrates that Janus is committed to living up to the high ethical standards that our shareholders expect of us."