State securities officials have charged units of Dutch financial services giant ING Groep NV with taking undisclosed payments for promoting poor investments to state employees in their individual retirement plans.
Regulators ordered ING Financial Advisors and ING Life Insurance and Annuity Co. to stop that and a host of other alleged improper practices and to provide information they said the companies so far have withheld.
"It's a fraud charge under our statute," Jeff Spill, deputy director in charge of enforcement for the state securities regulation bureau, said Friday.
Dana Ripley, a U.S. spokesman for ING, had no immediate comment on the charges.
Bureau Director Mark Connolly said the state expects ING to request an administrative hearing at which it would respond.
The complaint, filed Thursday, accuses ING of accepting millions of dollars from mutual funds over several years in so-called "revenue sharing" payments to promote their products without telling investors about the payments. During the period, the state was led to believe that funds were put on the investment menu on the basis of performance.
The Wall Street Journal reported Friday the funds included those of Fidelity Investments, Pioneer Investments, Capital Research & Management Co.'s American Funds, Amvescap PLC's Invesco funds, Oppenheimer Funds Inc. and ING Funds.
If disclosed to shareholders in fund literature, such payments are not a problem.
Fidelity told the Journal it discloses its payments. Spokesmen for American Funds and Oppenheimer said their payments are also disclosed.
The state also accused ING of "market timing," which is frequent trading that can increase a mutual fund's costs and impair its performance.
The complaint also alleges "late trading" of fund shares after securities markets close for the day, and of moving investments from one family of mutual funds to another without permission to earn higher fees for ING.
Connolly said ING publicly revealed in 2004 that it had participated in market timing, but ING has not answered the state's request for information. He said the state has been trying to get relevant documents from ING for two years.
Connolly said he believes the alleged violations are national in scope. Spill said ING administers funds similar to those in the $180 million in other states and may have done the same thing elsewhere.
"We suspect that it has," Spill said. "A lot of these plans utilize the same mutual funds."
Spill said potential penalties range from revoking ING's state license to fines to a restitution order.
The complaint said that in 2003, a consultant analyzed funds offered to state employees in their 457 plans, similar to 401(k) plans for private-sector employees, and recommended that at least eight be put on probation or a watch list for poor performance and another fund be terminated.
Only three of the nine funds were removed, regulators said, and they were ones run by a company that did not make "revenue sharing" payments to ING. ING retained funds of six "strategic partners" recommended for probation or a watch list, according to the Journal.
Connolly said state employees need not do anything immediately considering the charges.
"There should be no overreaction," he said. "This is not something to make bigger than it is. These are very technical questions. We believe the fund on some level was harmed."
- 185 Corruption