Money manager Waddell & Reed (WDR - Get Report) will pay a $50 million penalty to securities regulators to settle claims arising from the nearly 3-year-old investigation into abusive mutual fund trading.
The Kansas-based financial firm said Monday it had reached a settlement with both state regulators and the Securities and Exchange Commission. The penalty stems from allegations that Waddell & Reed permitted hedge funds and other traders to market time some of its mutual funds.
Market timing is a trading arbitrage that involves frequently buying and selling mutual fund shares and playing them against the shares the fund owns. It's often harmful to long-term fund investors because it drives up the costs of operating the funds.
Over the past three years, regulators investigating abusive mutual fund trading have collected more than $3 billion in fines from mutual fund companies, brokerages and hedge funds."These settlements have been in the process for some time and relate to matters well in our past,'' says Waddell & Reed CEO Henry Herrmann.