LONDON -- Amvescap PLC, a publicly traded money management firm, expects U.S. federal and state authorities to recommend civil enforcement actions against its Denver-based mutual funds unit, Invesco Funds Group.
The U.S. Securities and Exchange Commission and the New York State Attorney General's office allege that some Invesco investors engaged in improper short term trading, known as market-timing.
Invesco is cooperating with these regulators and is conducting its own internal review, Amvescap said in a statement issued at its London headquarters late Monday.
Market-timing is a type of quick, in-and-out trading that is not illegal, but is prohibited by many funds because the practice skims profits from longer-term shareholders. To try to protect against market-timing, Invesco has restricted likely market-timing investors to funds it believed would not be harmed by the activity.
Invesco plans to argue enforcement action is unwarranted. During the last 12 months, Invesco has terminated trading privileges for customers representing assets of $500 million because of trading guideline violations, Amvescap said.
In addition, Invesco "never knowingly permitted" late trading in the shares of its funds and supports tighter controls to guard against the practice, Amvescap said. Late trading is the illegal practice of buying and selling mutual fund shares at the closing price after the market has closed for the day.
Late trading is prohibited by SEC regulations because it allows a favored investor to take advantage of any events that happen after the market closes. Regular investors at that hour would have had to take the next day's closing price, as mutual funds price just once per day.
Invesco is among a growing number of mutual fund firms under scrutiny because of trading practices in the $7 trillion industry.
Invesco has guidelines intended to limit how many trades investors could make in its funds, according to Mark Williamson, head of AIM Investments. The Houston-based subsidiary of Amvescap oversees Invesco funds.
Invesco granted limited exceptions to those guidelines, Williamson said in a letter to clients released Monday. He said those exceptions were made for what the firm called "legitimate asset allocation strategies" and that restrictions were added.
The restrictions included limiting such activity to certain mutual funds, restricting the dollar amounts and frequencies of such trades, and reserving the right to reject any trade, Williamson wrote.
Investors who didn't follow such rules were subjected to further restrictions or had their activities terminated, he said.