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Mutual Fund News

Firms agree to pay clients

The Ontario Securities Commission has approved a plan that will see five mutual fund companies disburse $205.6-million to investors affected by a market timing scandal that came to light last year.

As part of a settlement agreement with the OSC, the companies -- AGF Funds Inc., AIC Ltd., CI Mutual Funds Inc. (now CI Investments Inc.), I.G. Investment Management Ltd., and Franklin Templeton Investment Corp. -- acknowledged that they routinely gave preferential treatment to a select few clients at the expense of long-term investors.

Market timing involves making frequent trades in and out of funds in order to cash in on minor pricing discrepancies. It is not illegal, but is usually prohibited by many fund companies, since the quick trading can raise administrative costs and undermine returns to investors.

"We are pleased that the fund companies have been able to develop these plans efficiently and that the timetable achieved will result in investors receiving the payments three months earlier than contemplated by the settlements," OSC chairman David Brown said.

According to the settlement plan, the companies will make payments on the basis of unit holders' positions in a specific fund and within a specific account.

For example, if an account holder had three separate accounts in any fund, he or she will receive separate payments. However, companies may combine payments across accounts and funds to reduce the number of cheques.

The settlement amount includes contribution from the Investment Dealers Association, which ranges from more than $1-million to more than $3-million.

William Holland, chief executive officer at CI Fund, has said that about 1.4 million of its clients in 24 funds were affected. CI plans to distribute $49.3-million. AIC will pay the largest restitution, totalling $58.8-million, according to information on the OSC website.

© 2007 The Globe and Mail. All rights reserved.

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