The Ontario Securities Commission sent notices to four mutual fund managers, warning them of potential enforcement proceedings for market timing violations. The notices give the companies the opportunity to refute the charges, which are expected to take several months to resolve.

"As we near the end of our investigation into the four fund managers, we are following our routine practice of providing them an opportunity to respond to our concerns and with any reasons why we should not initiate proceedings against them," said OSC Enforcement Director Michael Watson.

The OSC did not name the companies, instead urging them to take it upon themselves to tell the public they are under investigation. The Commission also said it took special care not to single any one company out, hence the simultaneous notices.

All four companies issued statements Tuesday revealing themselves, all indicating that they have taken measures to protect against market timing.. AMG Funds said it was contacted due to concerns over trades between August 2000 to July 2003, CI Fund Management due to trades between October 1999 and September 2003 and AIC Ltd. for trades between January 1999 and October 2003. CI said it is reviewing the OSC notice and plans to respond promptly. Finally, Investors Group said the OSC had concerns over "a small number of instances of short-term trading in its international mutual funds" between March 2000 and September 2003. Investors Group said it fully supports the Commission’s probe and "welcomes the opportunity to address short term trading, and our approach to it, which has been consistent with our long-standing track record of looking after the interests of our clients." AIC said it had uncovered the market timing from an internal probe prior to the OSC’s investigation.

The OSC began its probe into potential trading abuses in November, requesting information on policies and procedures from 105 fund companies with the heaviest and most frequent trading volume. Based on that information as well as a random sampling, the Commission next winnowed that down to 31 firms, whose trading records it investigated in depth, many on site. The OSC initially found seven firms – among the nation’s largest, representing 40% of assets – suspect. But it has now finally pared that down to only four companies.

After it began its probe, all improper market timing activity ceased, the Commission said. To date, it has found no evidence of late trading.

The Commission plans to continue its examination into potential trading abuses among a second set of firms representing another 40% of the nation’s assets. Once the investigation into this next set of firms is completed, the Commission will issue a full report.

"We’ve said all along that we were going to get the facts, and then act on those facts," said OSC Chairman David Brown. "From the beginning, we knew what was at stake. That’s why we’re being so thorough. Today’s announcement indicates that we are prepared to take whatever regulatory action is necessary to reaffirm investors’ trust in the mutual fund industry. We’ve never lost sight of that goal."

Subscribe Now

Access to premium content including in-depth coverage of mutual funds, hedge funds, 401(K)s, 529 plans, and more.

3-Week Free Trial

Insight and analysis into the management, marketing, operations and technology of the asset management industry.