U.S. SECURITIES AND EXCHANGE COMMISSION
Litigation Release No. 18482 / December 2, 2003
SEC v. Invesco Funds Group, Inc., and Raymond R. Cunningham Civil Action No. 03-N-2421 (District of Colorado)
Today, the Securities and Exchange Commission filed suit in the United States District Court for the District of Colorado against Invesco Funds Group, Inc., and Raymond R. Cunningham. Invesco Funds Group, Inc. ("IFG"), headquartered in Denver, is an investment adviser registered with the Commission and manages the Invesco complex of mutual funds. Cunningham has been the president of IFG since May 2001 and the chief executive officer since January 2003. He has also been a member of the board of directors of IFG and the Invesco fund complex since May 2001.
The Commission alleged that from at least July 2001 until October 2003, the defendants fraudulently accepted investments by market timers in Invesco mutual funds to enhance the management fees earned by IFG. The complaint alleges that market timing is the practice of frequent short term buying and selling of mutual funds shares, and that IFG entered into specific arrangements with particular investors under which these investors were allowed to market-time Invesco funds. The complaint further alleges that the defendants accepted these investments knowing that doing so would be detrimental to long-term shareholders in the mutual funds. In addition, the complaint alleges that accepting these investments was fraudulent because it was contrary to disclosures made in the prospectuses for the mutual funds. These disclosures stated that exchanges between funds by investors would be limited to four yearly and that changes in this policy would only be allowed if it was in the best interests of the funds.
The complaint further alleges that the defendants had a fiduciary duty to act at all times in the best interests of the Invesco mutual funds. Accordingly, the defendants had an affirmative obligation to act in the utmost good faith, and to provide full and fair disclosure of all material facts to investors. The complaint alleges that, despite this duty, the defendants never disclosed to shareholders in the funds or to the independent directors or trustees of the funds that particular investors were being allowed to market-time the funds or that IFG had a conflict of interest because the market timing arrangements served to increase its management fees.
The complaint alleges that, based on the foregoing, IFG violated the antifraud provisions of the Securities Act of 1933 set forth in Section 17(a), the Securities Exchange Act of 1934 set forth in Section 10(b) and Rule 10b-5, and the Investment Advisers Act of 1940 set forth in Sections 206(1) and (2). The complaint further alleges that Cunningham violated Sections 17(a) and 10(b) and Rule 10b-5 and that he aided and abetted IFG's violations of Sections 206(1) and (2). The complaint additionally alleges that IFG and Cunningham violated Section 34(b) of the Investment Company Act of 1940 based on the filing of materially false and misleading registration statements with the Commission. The registration statements were allegedly false and misleading because they contained the fund prospectuses described above. Last, the complaint seeks relief against IFG and Cunningham under Section 36(a) of the Investment Company Act. This provision allows the Commission to seek injunctive relief against, among others, any investment adviser to or director of an investment company based on a breach of fiduciary duty involving personal misconduct.
The Commission's action seeks permanent injunctions, disgorgement of the defendants' ill-gotten gains plus prejudgment interest, and civil penalties against both defendants.