SEC Fines of Invesco and AIM Advisors to Fund $375 Million in Payments to Victims of Late Trading Fraud in Mutual Funds

After a widespread investigation into late-trading of mutual funds the SEC levied sanctions against various mutual fund management companies and others, including fines as well as orders to disgorge profits and to reimburse the victims of the fraudulent trading. In 2004, Invesco was ordered to pay $325 million and AIM Advisors was ordered to pay $50 million.

The basis of the fraud was simple: Closing prices of mutual fund shares are set based on closing prices of the shares held in the funds. However, inflow and outflow of funds can legitimately occur based on orders placed prior to the close. The fraudulent orders were placed after the market closed but were made to appear as earlier orders. Those transacting the late orders had the unfair advantage of news announced after the close as well as post-closing changes in stock prices.

Over several years, billions were reaped from such improper market timing activities. The victims of the fraud were the millions of legitimate owners of the mutual funds. The SEC has established what it calls “Fair Funds” to reimburse victims of late trading and other scams. This week over $300 million will be also distributed to Time Warner shareholders who bought based on improper financial data. The SEC says that, with these distributions, the total paid from Fair Funds now tops $2 billion.

Shepherd Smith and Edwards represents individuals and institutions who are victims of securities fraud. We have represented thousands of investors nationwide to recover. If you our your firm have lost money in because of misconduct by those in the securities industry contact us to arrange a free consultation with one of our attorneys.

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