Waddell & Reed reached an agreement with the Securities and Exchange Commission, New York Attorney General Eliot Spitzer and Kansas Securities Commissioner Chris Biggs over market timing in its mutual funds between 1995 and 2003, agreeing to pay $50 million in restitution to investors and to reduce fees by $5 million a year for five years.
In addition, the company will pay Kansas $2 million for investor education. The company has also agreed to increase efforts to halt market timing, ensure fees charged to investors are negotiated at arm's length, establish an independent board of directors and improve disclosure of fees and expenses to investors.
One fund where there was particularly active market-timing activity was the Waddell & Reed International Growth Fund. In exchange, the timers agreed to pay fees ranging from 25 basis points to 1% of assets. In the final 18 months of the market-timing activity, senior management was aware of the transgressions but did nothing to stop it.
"The evidence in this case showed that company officials didn't just look the other way at timing activities," Spitzer said. "They facilitated the transactions."
Biggs noted that his office imposed the biggest fine ever on Waddell because it had "put its own interests and those of a few market timers over the interests of its long-term clients."
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