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Updated from Nov. 17

Richard Garland, who scandalized



with a damning email in defense of the firm's deals with market-timers, has resigned as chief executive of Janus International.

Meanwhile, Janus Chief Executive Mark Whiston issued a "progress update" indicating that all Janus employees central to the decision to allow improper trading within its funds are gone from the firm's ranks.

Garland's ouster is the other shoe that's been waiting to drop for more than two months. On Sept. 3, New York Attorney General Eliot Spitzer announced a $40 million settlement with hedge fund

Canary Capital Partners

over its abusive trading within funds at four mutual fund firms -- Janus,

Bank of America's

(BAC) - Get Free Report

Nations Funds,

Bank One's


One Group funds and

Strong Capital Management


For Janus, the most devastating piece of New York Attorney General Eliot Spitzer's investigation into abusive trading came in the form of an email exchange between Garland and an unnamed employee at Janus over the firm's market-timing arrangements. When Canary sought to expand its time-zone arbitrage trading arrangement with Janus, an employee at the Denver-based fund shop sent concerned emails to Garland about the volume of market activity. "We need to keep our funds clean," the emailer wrote to Garland.

Garland replied, "I have no interest in building a business around market-timers, but at the same time I do not want to turn away $10-$20m!" After learning that the deal could bring in as much as $50 million, Garland gave the go-ahead for additional market-timing capacity on April 3, 2003. The new deal was never finalized. Janus has subsequently revealed that it had 12 "discretionary arrangements" allowing improper trading.

"Anybody associated with misdeeds at any firm should be shown the door," said Brian Portnoy, the Morningstar analyst who covers Janus funds -- and who wrote a column suggesting Morningstar readers get out of Janus offerings in light of the scandal.

Garland will be replaced by Erich Gerth, previously national sales director of Janus Global Adviser. Gerth, who joined the company in July from Goldman Sachs Asset Management, will report to Whiston.

In the statement Tuesday morning, Janus said that an internal review found that "a few employees thought that limited, controlled market-timing was not harmful to the funds or their shareholders." Those employees "central to the decisions" to allow improper trading have either left the firm before Spitzer's announcement or have subsequently resigned, according to Janus.

The firm also said no current portfolio managers established trading arrangements and that no Janus manager or top executive engaged in improper trading in their own accounts. Lastly, the internal review has found no evidence that Janus allowed any late trading -- an illegal activity in which investors execute trades after the 4 p.m. cutoff time but get the earlier session's share price, in violation of forward-pricing rules.

Janus has partly portrayed the trading scandal as the work of bad apples no longer skulking around the Denver office. "Certain employees central to these decisions are no longer employed by Janus," CEO Mark Whiston said in a recent letter to shareholders. Indeed, the

Denver Post

recently reported that three former Janus staffers are bearing the blunt of the blame: institutional sales manager Lance Newcomb and former portfolio managers Sandy Rufenacht and Warren Lammert.

Janus, which is in settlement talks with Spitzer's office, also said it is working toward "a timely resolution" with regulators.

Meanwhile, Janus announced a few measures in an attempt to shore up its funds against abusive trading. The firm retained Marianne Smythe, former director of the SEC's Division of Investment Management and current partner at law firm Wilmer Cutler & Pickering, to review Janus' compliance policies.

Janus also upped the short-term redemption fee to 2% from 1% for shares sold within 90 days of purchase within the funds that impose redemption fees. It is considering adding redemption fees at the other Janus funds that don't currently have redemption fees. Janus will also disclose its holdings once a month, with a 30-day lag period -- up from semiannually.

Lastly, Janus said it expects to learn in December from its trustees and auditors the exact amount of damage done by its improper trading arrangements. The firm will then detail how and when it will compensate the fund holders who lost money due to the arrangements.