Investment management giant Federated Investors said Monday its quarterly profits dropped 12% after taking a $20 million charge to cope with improper mutual fund trading.
The Pittsburgh-based company said fourth-quarter net income fell to $42.8 million, or 38 cents a share, compared to $48.9 million, or 42 cents a share, in the year-ago period.
The results included a charge of 12 cents a share for the creation of cash reserves to pay restitution to investors who suffered losses as a result of illegal late trading and deceptive market timing practices.
Federated said last week it set up a $7.6 million fund to repay harmed investors and use another $12.4 million to pay for its internal probe into questionable trading practices.
In November, the company fired one mid-level officer who admitted deleting e-mail messages relevant to its investigation, and accepted the resignations of two executives who arranged for some investors to engage in frequent trades.
The internal investigation revealed that investment advisor Veras Partners secretly made late trades between 4 p.m. and 5 p.m. on 15 occasions. Federated also said in its report that it has identified 100 other instances in which trades were accepted after the 4 p.m. close. But the company said employees who allowed the late trades did so because they didnt have a "sufficient understanding" of the circumstances under which orders could be processed after the bell.
Further, Federated said it had found no evidence to suggest employees had special arrangements in place to allow customers to engage in late trading. To date, no formal charges have been filed against the company.
Excluding the one-time charge, the company posted net profits of 50 cents a share. Wall Street analysts, on average, were expecting Federated to earn 47 cents a share, according to research firm Thomson Financial First Call, sister company of Thomson Media, publisher of Money Management Executive.
Total assets under management climbed to $197.9 billion at the end of 2003 from $195.4 billion the previous year.