Updated from 9:02 a.m. EDT
, two financial services firms mired in the mutual fund trading scandal, announced big management shake-ups on Tuesday.
At Janus, Mark Whiston is stepping down as chief executive of the mutual fund company and also is relinquishing his seat on the firm's board of directors. He will be succeeded by Steve Scheid, who will continue on as the firm's chairman.
In a press release announcing Whiston's resignation, Janus made no mention of the mutual fund trading scandal. But Whiston's resignation comes as the mutual fund firm is close to reaching a settlement with securities regulators over its role in the trading scandal that has tarred much of the $7.6 trillion industry, according to sources.
Janus was one of the first mutual fund companies to come under regulatory scrutiny. In court papers filed last September by New York Attorney General Eliot Spitzer, Janus was one of several mutual fund companies that allegedly allowed the
Canary Capital Partners
hedge fund to engage in abusive trading.
The trading scandal has cost top executives at other mutual fund companies their jobs, and there had been much speculation that Whiston ultimately would be forced to step down. Whiston will continue on as a consultant at Janus until the end of the year.
"As we look to the future, Mark and the board concluded that it makes sense for new leaders to shape Janus' future," says Janus spokesman Blair Johnson.
Cutting ties with Whiston won't come cheap to Janus. The firm says it expects to take a $17 million charge, or 4 cents a share, in the second quarter to cover the cost of severance and deferred compensation that is owed Whiston. The charge also includes a $5.8 million cash payment to Whiston.
Earlier, the firm set aside $31 million to cover investor losses due to market timing activity in some of its funds. Market timing, or frequent trading, can erode the value of a funds' assets.
Meanwhile, the president and chief operating officer of J.B. Oxford resigned last week, just three days after the Los Angeles-based brokerage received a second notification from securities regulators that it is likely to face an enforcement action over its role in the mutual fund trading scandal.
The firm disclosed the April 15 resignation of James Lewis in a regulatory filing early Tuesday. The filing offered no explanation for the move. Lewis also resigned from the board of directors of J.B. Oxford, which is mainly known for its online brokerage service.
In the same filing, J.B. Oxford reported that regulators in the
Securities and Exchange Commission's
Los Angeles-area office are recommending that the agency "institute civil and administrative proceedings against the company,'' stemming from an investigation of the firm's National Clearing Corp. subsidiary.
Last November, the SEC served a similar notice on the J.B. Oxford clearing subsidiary, which processes and executes trades for a number of small brokerages and hedge funds. Last September, J.B. Oxford's name first surfaced in the mutual fund trading investigation over allegations it may have processed some illegal mutual fund trades for the Canary hedge fund that has played a critical role in the investigation.
Three weeks ago, in the company's 2003 annual report, J.B. Oxford said its ability to continue operating as a "going concern" could be compromised by the outcome of a regulatory and criminal investigation into the firm's role in the far-reaching trading scandal.
The company, as it has on a number of occasions, continues to say it is cooperating with the investigation and hopes to settle the matter over allegations of illegal late trading. But in its annual report, J.B. Oxford, which has lost a little more than $20 million the past three years, painted a dire picture of the situation it finds itself in.
J.B. Oxford has said the scandal could tarnish its reputation and drive away existing customers who process and execute their trades through J.B. Oxford's clearing. In the worst-case scenario, the company said, it could be forced to file for bankruptcy protection if the scandal makes it impossible to find financing to continue its operations.
The investigation of J.B. Oxford, meanwhile, could have ramifications for other Wall Street firms that cleared and processed illegal and abusive mutual fund trades for small brokerages and hedge funds.
In New York, federal prosecutors and SEC regulators are involved in a major investigation of
, which maintains the largest clearing operation on Wall Street and processed for trades for the Canary hedge fund, as well as for
-- several small brokerages that have been implicated in the scandal.
In recent weeks, federal prosecutors and attorneys for the SEC have been questioning people about Bear Stearns' role in clearing and processing trades for a number of small brokerage firms that may have permitted hedge funds to engage in either market-timing or late trading of mutual fund shares. A person familiar with the investigation says that at least two Bear Stearns employees were interviewed by federal prosecutors within the past month, and several employees in the firm's clearing operation were dismissed.