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 agreement concerned three of the company's subsidiaries, Waddell & Reed Investment Management, Waddell & Reed Service and Waddell & Reed Inc.
"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 with full knowledge that small investors were being harmed."
Kansas Securities Commissioner Chris Biggs added: "This is an unfortunate situation in which a broker/dealer put its own interests and those of a few market timers over the interests of its long-term clients, many of whom are Kansas citizens. As a result, the firm has been assessed the largest fine the Office of the Securities Commissioner has ever imposed. However, Waddell & Reed has taken several recent strides to improve its compliance with the securities laws, and I am hopeful that today's settlement ends a sad chapter in the history of an otherwise reputable Kansas firm."
