Oxford, Janus Execs Resign
JB Oxford Holdings Inc. and Janus Capital Group Inc., two firms under investigation for alleged mutual fund trading abuses, announced top management shake-ups Tuesday that analysts said appeared aimed at appeasing regulators.
Beverly Hills-based JB Oxford said in a regulatory filing that its president and chief operating officer, James Lewis, resigned last week. The small discount brokerage also said the Securities and Exchange Commission’s Los Angeles office had recommended “civil and administrative proceedings against the company” after scrutinizing the unit that processes trades.
In a separate move, Mark Whiston stepped down as chief executive of Janus Capital, the big Denver-based mutual fund company with $150 billion under management. Whiston, a 14-year veteran of the firm, will be succeeded by board Chairman Steven Scheid.
Janus said Whiston’s departure was a mutual decision between him and the board. JB Oxford declined to comment.
Securities lawyers said the shake-ups could make regulators more willing to resolve charges that might arise from continuing investigations of market timing and late trading -- two of the tactics at the heart of the scandals roiling the $7.6-trillion fund industry.
Neither firm has been charged with wrongdoing. Analysts said regulators typically welcomed executive resignations as signs that companies had accepted responsibility for misdeeds.
“Increasingly, companies curry favor with the SEC and other regulators by taking steps like this aimed at reassuring investors,” said Bob Friese, a partner at law firm Shartsis Friese & Ginsburg in San Francisco, which is not representing Janus or JB Oxford.
Friese said that trend had gained steam since late 2001, when the SEC decreed that executive changes could be defined as “cooperation” with regulators -- lessening the brunt of any eventual action against a firm.
Mutual funds under the scrutiny of regulators in recent months over alleged trading abuses have been quick to roll heads, including Putnam Investments, Alliance Capital Management, Bank of America Corp. and Massachusetts Financial Services Co.
“In mutual funds the core business is retaining assets,” Friese said. “Investors have flown out the door very quickly at some firms.”
Both Janus and JB Oxford were cited in New York Atty. Gen. Eliot Spitzer’s Sept. 3 civil lawsuit against the hedge fund Canary Capital Partners, the case that touched off the fund scandals.
Spitzer’s complaint said JB Oxford made after-hours trades for Canary in exchange for a portion of the assets traded, and that Janus allowed Canary to make timing trades in exchange for other investments at the firm. Janus has acknowledged timing deals with about 10 investors in recent years, without specifying the traders.
Late trading occurs when orders received after the stock market’s 4 p.m. close are processed at that day’s “stale” price rather than the next day’s price, as they should be. The practice violates SEC trading regulations and New York securities law because it allows select traders to capitalize on post-market news.
Market timing, in which traders dart in and out of funds, hoping to exploit short-term pricing inefficiencies, is not illegal, but most funds discourage or disallow the tactic, calling it harmful to ordinary shareholders.
Analysts who follow Janus have speculated that a settlement between the Denver mutual fund giant and state and federal regulators could be near. But it was less clear whether JB Oxford, which garnered $20 million in revenue last year, was in a similar position.
JB Oxford had said previously that its securities trading subsidiary, National Clearing Corp., was notified in November of likely charges, and that federal prosecutors were investigating the brokerage. In its recent annual report, JB Oxford said worsening financial results and ongoing probes could threaten its viability as a “going concern.”
The SEC didn’t return a call Tuesday, and a spokesman for the U.S. attorney’s office in Los Angeles declined to comment.
JB Oxford, which accumulated losses of about $20 million in the last three years, also said in its filing that auditor Ernst & Young resigned and that BDO Seidman was expected to take over. In a statement announcing its management shuffle, Janus said it would take a charge of $17 million, or 4 cents a share, in the second quarter to cover the cost of Whiston’s departure, including a lump-sum payment and deferred compensation. The statement said Whiston’s resignation was “in the best interest of our fund shareholders, stockholders and employees.”
Janus, which announced the severance Tuesday morning, saw its shares slide 30 cents to close at $15.20 in New York Stock Exchange trading.
JB Oxford, whose shares trade on Nasdaq’s small-cap market, was unchanged at $2.90.
