“Janus Capital Group Inc., already battered by billions of dollars in investor withdrawals and uncertainty over its role in the mutual-fund-trading scandal, agreed to a $226 million settlement with federal and state regulators over charges that the Denver company allowed sophisticated traders to buy and sell its fund shares at the expense of other shareholders.” Writes Christopher Oster in today’s Wall Street Journal.

“The long-awaited settlement by the nation’s ninth-largest fund company included an agreement to set aside $100 million to compensate investors for the adverse effects of the trading. That total was more than triple the amount Janus had said it would repay to fund shareholders. Janus will also reduce its fund-management fees by $125 million over five years.”

“Janus said it will take a charge of $59 million, or 21 cents a share, against first-quarter earnings, because of the settlement. As a result, the company reported a first-quarter loss of $19.3 million, or eight cents a share, compared with net income of $38.6 million, or 17 cents a share, in the year-earlier quarter.”

“The fee reduction was reached in negotiation with the New York attorney general, while the Securities and Exchange Commission administers fines and penalties. The agreement is subject to approval by SEC commissioners. Janus also agreed to pay $1 million to the Colorado attorney general to be used for investor education and future enforcement.”

“Janus was one of the original four fund companies first tied to improper trading when the scandal surfaced in September. Its settlement brings the total of fines, disgorgement of profits and fee cuts obtained as a result of the scandal to $1.865 billion.”

” ‘The behavior here was made more problematic because of the knowledge … [which went] up to the very senior levels in the management of the Janus funds,’ ” New York Attorney General Eliot Spitzer said.”

“Last week, the company announced the resignation of Mark Whiston, who had been the company’s chief executive since early last year. Regulators have scrutinized whether Mr. Whiston knew of the improper trading in Janus’s funds. A company spokeswoman said the decision to leave was Mr. Whiston’s and wasn’t an indication that Mr. Whiston had any knowledge of improper trading prior to September.”

“In addition to the monetary penalties, Janus agreed to a requirement that the chairman of its mutual-fund boards be ‘truly independent,’ according to regulators. Until last month, Janus founder and former Chief Executive Tom Bailey served in that role.”

“For Janus, the settlements pale in comparison to the damage already done by the trading scandal. Janus now oversees $145 billion in assets, down from $320 billion at the peak of the technology-stock bubble in early 2000. Although poor performance in many of its largest funds in 2000 to 2002 sent investors fleeing its funds, the pace only increased after the scandal broke. In the first eight months of last year, investors withdrew a net $5.1 billion from Janus’s funds, according to Financial Research Corp. From September to February, investors yanked out an additional $14 billion.”