Investors Advised to Avoid Janus Amid Probe

A leading mutual fund rating firm said Friday that investors should avoid Janus mutual funds after the New York attorney general began an investigation of the funds for alleged improper trading.

Chicago-based Morningstar Inc. said the investigation into several fund companies turned up evidence of practices including dealings after the markets close for the day.

The firm said internal Janus e-mails released by New York Atty. Gen. Eliot Spitzer suggest salespeople steered the company “against its fiduciary duties in hopes of making a fast buck,” placing the company’s interests ahead of shareholders.

“What has soured our mouths with Janus in particular is that the firm already had two major strikes against it: poor bear-market performance and noteworthy management departures,” analyst Brian Portnoy wrote. “This ethical breach is the third strike against it. Three strikes, you’re out.”

Denver-based Janus Capital Management issued a statement Friday saying only that its rating by Morningstar had not changed with Portnoy’s analysis.

“Our fund performance continues to improve,” Janus Chief Executive Mark Whiston said.Last week, Canary Capital Partners agreed to pay $40 million to settle charges by Spitzer that it engaged in illegal trading with several large mutual fund companies, including Janus.

Janus said it would provide restitution to shareholders who were adversely affected by the activities under investigation.