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Waddell & Reed was hit with a $77 million tab to settle market-timing charges from regulators at the SEC, the New York attorney general's office, and the Kanas securities commissioner. The firm will pay $52 million in fines plus an additional $25 million in fee reductions to be spread out over five years.
According to the settlement, Waddell & Reed permitted market-timing in its funds going back as far as 1996 right up until September 2003 when Eliot Spitzer announced his probe into the practice. The settlement documents say that Waddell & Reed was more direct than most of the firms in the scandal in that it simply charged additional fees for market-timing space rather than quid pro quo sticky money deals: "The Timing Agreements required the Fee Paying Timers to pay W&R or W&R Services a fee ranging from 25 to 100 basis points on the timing assets, purportedly as payment for services."
Waddell & Reed received $3.6 million in fees from three market-timers who in turn netted a profit of $8.2 million, according to settlement documents. They also state that Waddell set limits on the percent of the total fund assets for which the timers could account, but that the timers were able to exceed those limits.
In addition, the documents say Waddell & Reed International Growth
The agreement also requires that the fund board employ a consultant who will negotiate advisory fees at arms length to the firm. Another unusual aspect of the settlement is that it does not name any of the people at the firm who were responsible for the timing--nor did it require any to leave the firm.
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