Janus Capital Group Inc. of Denver said Wednesday that it is taking a $9 million charge against third-quarter results to account for costs resulting from an investigation announced Sept. 3 by the New York Attorney General.
And company executives said in a conference call that the charge was just the beginning of the fallout from Eliot Spitzer's probe of market timing trades by the hedge fund Canary Capital Partners using mutual fund companies.
Mark Whiston, Janus' chief executive officer, said this is "a unique time" for the mutual fund industry, which is "under a cloud of regulatory scrutiny." However, he expressed optimism that Janus' strategy of divesting some noncore assets, continued corporate restructuring, and sales growth in the broker-dealer channel would help weather the storm in the long term.
The $9 million charge includes $1 million for estimated management fees that Janus earned from the discretionary frequent-trading arrangements and $5 million of waived redemption fees. Legal defenses and other related costs, which are recorded when incurred, were $3 million.
However, the executives said that accurate estimates of other costs associated with the investigation cannot be made yet. These include the costs of making amends to investors; judgments or settlements in the civil actions filed against the company, or payments that may be ordered by regulators.
Loren Starr, the chief financial officer, said the company is doing an internal review with the help of Ernst & Young. It is expecting a report from the accounting firm within a few weeks that would detail potential liabilities facing Janus. If this report is released before Nov. 14, when Janus files its 10-Q with the Securities and Exchange Commission, it "could significantly increase the amount of the charge" and the company would need to revise its third-quarter results, he said.
Janus reported net income of $50.9 million for the quarter, including the preliminary charge. That compares to a net loss of $131.2 million the year earlier, caused in part by a noncash, deferred income tax charge of $107.8 million and a $59.4 millioncorporate restructuring charge.
Though the company this month reported $4.4 billion of September fund outflows, Mr. Whiston said flows appear to have stabilized.
