Firm settles mutual fund probe

ALBANY, N.Y. — Federated Investors Inc., one of the nation’s largest investment managers, has agreed to pay $100 million to settle a state and federal investigation into improper mutual fund trading by selected groups at the expense of individual investors, New York Attorney General Eliot Spitzer said Monday.

“With this agreement, virtually the entire mutual fund industry has now sworn off improper trading practices and agreed to compensate investors who were harmed,” Spitzer said of the settlement with the Securities and Exchange Commission.

Federated spokesman J.T. Tuskan declined comment the settlement or how it might effect operations. Founded in 1955, Federated is one of the nation’s largest investment managers with assets under management of more than $207 billion, according to the firm’s Web site.

Federated is the 14th firm to settle improper mutual fund trading charges since Spitzer’s case against the Canary Capital Partners firm in 2003.

Pittsburgh-based Federated has agreed to reforms and to pay $35 million in restitution to investors, $45 million in civil penalties, and cut its management fees by $20 million over five years. Federated will also hire a senior officer to monitor the setting of advisory fees for managing funds to be sure they are “at arm’s length and are reasonable,” according to Spitzer’s announcement.

The investigation of the company focused on mutual fund timing by insiders that can hurt long term mutual fund shareholders by reducing their shares’ value.

Spitzer accused Federated of secret market timing with three trading groups, knowing it gave an unfair advantage to the groups over individual investors.