Waddell & Reed Agrees to Market-Timing Settlement

Money manager Waddell & Reed(WDR Quote) 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.