Attorney General Salazar Announces Lawsuit Against Invesco Over Alleged Market Timing

Denver--Colorado Attorney General Ken Salazar today announced that his Office has filed suit against INVESCO Fund Group, Inc. (“INVESCO”) for alleged violations of the Colorado Consumer Protection Act.

The Complaint, which was filed this afternoon in Denver District Court, alleges that starting in at least 2000, INVESCO made misrepresentations to investors in its mutual funds concerning the practice known as “market timing.” Specifically, the Complaint charges that while INVESCO emphasized the long-term nature of its mutual fund investments and expressly advised investors of mechanisms to limit short-term trading in its funds, it nonetheless entered into a large number of agreements with very large, very wealthy investors to allow them to engage in the short-term trading strategy known as market timing.

As many as 75 million Americans invest in mutual funds as a means of providing for their financial future, college savings, and retirement. Many consumers, wary of the confusing and volatile world of Wall Street investing, choose mutual funds to invest their life savings because of their desire for stable and long-term growth.

Mutual fund companies like INVESCO market a variety of mutual fund products as long-term investments and make promises to investors regarding how those funds will be managed to protect the "best interests" of their shareholders.

Market timing is an investment technique involving short-term, in and out trading of mutual fund shares. The technique is designed to exploit inefficiencies in the way mutual fund companies price their shares. Market timers reap profits at the expense of long-term investors in mutual funds – like those saving for retirement or college -- by recovering short-term profits and avoiding short-term losses.

“This is a very important case for investors in Colorado and around the country,” said Attorney General Ken Salazar. “INVESCO told investors that it limited short-term trading in its mutual funds, and took steps to stop market timing by small investors, all the while it was allowing a select number of very wealthy companies and individuals to engage in market timing.

INVESCO’s deception hurt all the other INVESCO mutual fund shareholders by diluting the value of their investments, harming long-term growth potential, and causing long-term investors to bear a disproportionate share of the funds’ taxes and expenses,” Salazar said.

The Complaint alleges that despite all the harmful effects of market timing on long-term investors, mutual fund management companies have an incentive to allow the practice since their fees are based on a percentage of the total of all assets in the funds. By INVESCO’s own estimates, up to $1 billion of the assets in INVESCO at any given time were attributable to market timers.

The Complaint seeks an injunction, penalties and restitution in an amount to be determined.