Updated from Nov. 17
Richard Garland, who scandalized
(JNS - Get Report)
with a damning email in defense of the firm's deals with market-timers, has resigned as chief executive of Janus International.
Meanwhile, Janus Chief Executive Mark Whiston issued a "progress update" indicating that all Janus employees central to the decision to allow improper trading within its funds are gone from the firm's ranks.
Garland's ouster is the other shoe that's been waiting to drop for more than two months. On Sept. 3, New York Attorney General Eliot Spitzer announced a $40 million settlement with hedge fund
Canary Capital Partners
over its abusive trading within funds at four mutual fund firms -- Janus,
Bank of America's
(BAC - Get Report)
(ONE - Get Report)
One Group funds and
Strong Capital Management
For Janus, the most devastating piece of New York Attorney General Eliot Spitzer's investigation into abusive trading came in the form of an email exchange between Garland and an unnamed employee at Janus over the firm's market-timing arrangements. When Canary sought to expand its time-zone arbitrage trading arrangement with Janus, an employee at the Denver-based fund shop sent concerned emails to Garland about the volume of market activity. "We need to keep our funds clean," the emailer wrote to Garland.
Garland replied, "I have no interest in building a business around market-timers, but at the same time I do not want to turn away $10-$20m!" After learning that the deal could bring in as much as $50 million, Garland gave the go-ahead for additional market-timing capacity on April 3, 2003. The new deal was never finalized. Janus has subsequently revealed that it had 12 "discretionary arrangements" allowing improper trading.
"Anybody associated with misdeeds at any firm should be shown the door," said Brian Portnoy, the Morningstar analyst who covers Janus funds -- and who wrote a column suggesting Morningstar readers get out of Janus offerings in light of the scandal.