Several weeks after
revealed it is hanging on to money sent to its closed funds, crosstown rival
admitted it is doing something similar.
In a change to its prospectus, filed Thursday with the
Securities and Exchange Commission
, Denver-based Invesco says it wants investors to know if they send in a check and don't specify where the money should go, it will end up in an Invesco money-market fund.
The policy is not new, says Invesco spokeswoman Molly Cisneros, and was stated on the account application form. But the firm now wants it to be stated explicitly in its prospectuses. "There was some confusion over what a competitor of ours was doing," she says, referring to Janus.
Janus' practice of depositing checks earmarked for closed funds into money-market accounts has raised a few eyebrows around the fund world. The SEC has reportedly asked Janus about the practice, but the SEC wouldn't confirm that.
Now that the issue has come to light, Invesco "probably put it in the prospectus because they don't want their sales reps to get yelled at," says Pamela Wilson, a mutual fund lawyer with Boston's
Hale & Dorr
What's different about Invesco's move is the company, which has $40 billion in assets, doesn't have a stable of hot funds that are closed to new investors. Janus, with $210 billion in assets, has four:
Those funds had an average return of 125% in 1999, so it's not surprising that shareholders are trying to slip a few dollars in. Some even send in checks for Janus funds that aren't yet open, like
, which is set to open in June. What's more, Janus has been swimming in cash for more than a year, attracting more new investment than either fund giants
Invesco, though it's been piling on new cash, doesn't have any closed funds. It does, however, have 32 mutual funds that investors might mix up. Cisneros says that when the company receives a check, it's clear that an investor wants his or her money invested by Invesco. If Invesco doesn't receive specific instructions to where the money should be invested, the firm will call the prospective shareholder, and if it doesn't receive instructions by the day's end, the funds will be deposited into the customer's money-market account. Then the firm follows up with a snail-mail letter asking for further directions.
"No mutual fund company wants to send you your money back," says Edward Siedle, a former SEC lawyer who now advises on shareholder lawsuits against mutual funds.
Now that the practice has come to light at Janus and Invesco, "every fund company that does it will either change the prospectus or stop doing it," he says.
But Janus and Invesco are not in the same boat, Wilson says. "The inference that Janus makes about the shareholder's intent is different from what they want," she says. By contrast, she calls Invesco's policy "a good, sensible thing to do" even if the SEC hasn't spelled out what the policy is.
That's part of the problem. A call to the public affairs department of the agency about policies in this area was met with a stern "no comment." A spokeswoman declined to say even if the SEC has a policy on the matter. Most likely there isn't, Wilson says, but the Janus situation may have given the SEC a reason to examine the issue.
"The SEC doesn't make policy unless it thinks that something is overreaching or just not nice," she says.