Banc One Investment Advisors Corp. is the latest firm to settle with the Securities and Exchange Commission in a mutual fund market timing case.

Under the terms of the settlement, the SEC ordered BOIA to pay disgorgement of US$10 million and a civil penalty of US$40 million. It also ordered Mark Beeson, former president and CEO of One Group Mutual Funds and senior managing director of BOIA, to pay a civil penalty of US$100,000.

At the same time, BOIA agreed to reduce advisory fees by $40 million, or US$8 million per year for five years, in the agreement with the NY Attorney General, Eliot Spitzer.

Under the SEC settlement, BOIA also consented to a cease-and-desist order and a censure, and agreed to undertake certain compliance and mutual-fund governance reforms. And, Beeson consented to a ban from the mutual fund industry with the right to reapply in two years, and a three-year prohibition from employment with any investment company and from serving as an officer or director of an investment adviser.

The commission found that BOIA and Beeson allowed excessive short-term trading in One Group funds by hedge fund manager Edward Stern in the hope of attracting additional business. It also found that BOIA: failed to charge Stern redemption fees as required by One Group’s international-fund prospectuses; had no written procedures in place to prevent the nonpublic disclosure of One Group portfolio holdings and improperly providing confidential portfolio holdings to Stern when other shareholders were not provided the same information, and; caused the funds to participate in joint transactions (a BOIA affiliate loaned money to Stern for the purpose of market-timing), raising a conflict of interest.

In addition, the commission said that BOIA allowed excessive short-term trading in One Group funds by a Michigan market timer in violation of fund prospectuses and failed to collect required redemption fees from a Texas hedge fund.

Commenting on the settlement, Sandler O’Neill & Partners L.P. says the timing of the agreement comes as no surprise as the firm’s parent Bank One is set to complete its merger with J.P. Morgan Chase on July 1. “The total $50 million agreement appears quite manageable. For example, it represents less than 5% of ONE’s $1.2 billion in net income in 1Q04,” it says.

Sandler is maintaining a BUY rating and a $66 price target, saying, “We think the major risk to the company’s achieving our price target is the failure of the merger to close as anticipated, which we view as highly unlikely.”