This Day On The Street
Continue to site right-arrow
ADVERTISEMENT
This account is pending registration confirmation. Please click on the link within the confirmation email previously sent you to complete registration.
Need a new registration confirmation email? Click here
Stocks Under $10 with 50-100% upside potential - 14 days FREE!

Invesco Gets Charged With Civil Fraud

Updated from 3 p.m. EST

The Securities and Exchange Commission and the office of New York Attorney General Eliot Spitzer charged Invesco and its chief executive, Raymond R. Cunningham, with civil securities fraud Tuesday, alleging that the mutual fund firm allowed several hedge funds to make improper trades in breach of the firm's fiduciary duty.

The SEC and Spitzer's office say Invesco "fraudulently accepted investments by dozens of market-timers in Invesco mutual funds" to enhance its management fees. In doing so, Invesco violated its market-timing policies as stated in its prospectuses, the complaint said.

Invesco and Cunningham "willingly sacrificed the interests of mutual fund shareholders when market-timers dangled the prospect of higher management fees in front of them," said Stephen Cutler, the director of the SEC's enforcement division. "By granting special trading privileges to selected customers, they readily violated the fiduciary duty they owed to all shareholders and rendered meaningless the funds' prospectus disclosures on market-timing."

Invesco, a Denver-based unit of the United Kingdom's Amvescap (AVZ), wasn't immediately available for comment. The charges have been expected for weeks and Invesco has said it will vigorously defend its actions.

TheStreet.com reported in October that five Invesco funds turned up near the top of a list of funds with red flags for excessively high trading levels. The Spitzer complaint alleged that Canary Capital Partners --¿the New Jersey hedge fund that reached a $40 million settlement with Spitzer over its abusive trading of four fund firms --¿was among the hedge funds that was allowed to market-time Invesco's funds, confirming a report in TheStreet.com last week. ¿

The complaint alleged that from at least July 2001 to October 2003, Invesco entered into arrangements the firm called "special situations" that allowed particular investors to market-time Invesco funds. These deals were kept secret from Invesco's independent board members and the funds' other investors. Invesco accepted these market-timing deals "with knowledge that they would be detrimental to long-term shareholders in the mutual funds," the complaint said.

Spitzer and the SEC's complaint put the damages from the market-timing arrangements at $160.8 million -- the fees that Invesco collected from unwitting long-term investors in the funds Invesco had turned over to timers. That total didn't include dilution and other costs associated with timing.

Invesco's prospectuses have long stated that the firm allowed up to four exchanges in to and out of funds in a given year -- and that exceptions would only be allowed if it met the best interests of the funds. In late November, Invesco acknowledged that "exceptions were made" to its market-timing policies, but defended the deals as in the best interests of all shareholders. The complaint alleges that Invesco fraudulently misled investors by "using the prospectuses that contained false market-timing policy." ¿

1 of 2

Select the service that is right for you!

COMPARE ALL SERVICES
Action Alerts PLUS
Try it NOW

Jim Cramer and Stephanie Link actively manage a real portfolio and reveal their money management tactics while giving advanced notice before every trade.

Product Features:
  • $2.5+ million portfolio
  • Large-cap and dividend focus
  • Intraday trade alerts from Cramer
  • Weekly roundups
TheStreet Quant Ratings
Try it NOW
Only $49.95/yr

Access the tool that DOMINATES the Russell 2000 and the S&P 500.

Product Features:
  • Buy, hold, or sell recommendations for over 4,300 stocks
  • Unlimited research reports on your favorite stocks
  • A custom stock screener
  • Upgrade/downgrade alerts
Stocks Under $10
Try it NOW

David Peltier, uncovers low dollar stocks with extraordinary upside potential that are flying under Wall Street's radar.

Product Features:
  • Model portfolio
  • Stocks trading below $10
  • Intraday trade alerts
  • Weekly roundups
Dividend Stock Advisor
Try it NOW

Jim Cramer's protege, David Peltier, identifies the best of breed dividend stocks that will pay a reliable AND significant income stream.

Product Features:
  • Diversified model portfolio of dividend stocks
  • Alerts when market news affect the portfolio
  • Bi-weekly updates with exact steps to take - BUY, HOLD, SELL
Real Money Pro
Try it NOW

All of Real Money, plus 15 more of Wall Street's sharpest minds delivering actionable trading ideas, a comprehensive look at the market, and fundamental and technical analysis.

Product Features:
  • Real Money + Doug Kass Plus 15 more Wall Street Pros
  • Intraday commentary & news
  • Ultra-actionable trading ideas
Options Profits
Try it NOW

Our options trading pros provide daily market commentary and over 100 monthly option trading ideas and strategies to help you become a well-seasoned trader.

Product Features:
  • 100+ monthly options trading ideas
  • Actionable options commentary & news
  • Real-time trading community
  • Options TV
To begin commenting right away, you can log in below using your Disqus, Facebook, Twitter, OpenID or Yahoo login credentials. Alternatively, you can post a comment as a "guest" just by entering an email address. Your use of the commenting tool is subject to multiple terms of service/use and privacy policies - see here for more details.
Submit an article to us!

Markets

DOW 17,776.67 +419.80 2.42%
S&P 500 2,053.09 +40.20 2.00%
NASDAQ 4,734.6570 +90.3450 1.95%

Brokerage Partners

Rates from Bankrate.com

  • Mortgage
  • Credit Cards
  • Auto

Free Newsletters from TheStreet

My Subscriptions:

After the Bell

Before the Bell

Booyah! Newsletter

Midday Bell

TheStreet Top 10 Stories

Winners & Losers

Register for Newsletters
Top Rated Stocks Top Rated Funds Top Rated ETFs