Federated Investors terminated an employee who regularly conducted late trades between 1999 and 2003, the company announced today. The company would not name the employee or his or her former position. Also, two portfolio managers were sanctioned for making personal trades in the company 401(k) plan with funds that they managed, although they held those funds for between nine and 62 days.
Separately, Federated has set up a $7.6 million "restoration fund" to cover any losses its investors may have incurred as a result of market timing or late trading activities discovered in the firm's review of mutual fund trading. Independent analyst Cornerstone Research was hired by the independent trustees of the Federated mutual funds to conduct the investigation. Federated said it will take a $20 million charge on its fourth quarter results to cover the establishment of a restoration fund and $12.4 million in expenses related to the review.
Federated also hired KPMG to review its internal audit and compliance functions, and make recommendations. The company also instituted a minimum holding period of 60 days for company officers and investment personnel investing in the company's funds.