A unit of Atlanta money manager Invesco agreed to restore almost $10.3 million to investors to settle a federal complaint that it violated retiree protections by using clients’ money to shore up an investment fund.
The U.S. Department of Labor, which regulates pensions and other retirement investments such as 401(k) accounts, said Invesco's actions violated the federal Employee Retirement Income Security Act, also known as ERISA.
The settlement gives Invesco a black eye only shortly after the Labor Department issued a sweeping new update of ERISA aimed at protecting retirement savers’ assets. The rules require investment advisers to act in retirement investors’ best interests, a tougher standard than current rules that only require brokers and certain other advisors to recommend “suitable” investments. The new rules take effect next year.
The civil settlement unveiled Friday concerned the Invesco Short-Term Investment Fund, a money market fund run by Invesco’s subsidiary, Invesco Trust Co. The fund had about $5 billion in assets when the agency began its investigation two years ago, but has since dropped to about $3 billion.
Invesco cooperated with the Labor Department in its investigation and “neither admitted nor denied wrongdoing,” said Invesco spokeswoman Jeaneen Terrio. She said the company agreed to the settlement “to reach a resolution and put it behind us.”
According the the Labor Department, Invesco used a number of undisclosed measures to keep the money market fund’s shares from falling below their traditional net asset value and price of $1 a share, an event known as “breaking the buck.”
That usually happens when a fund’s investments don’t earn enough income to cover the fund’s management expenses. That has been more likely to happen in recent years due to extremely low short-term interest rates in many markets, including the U.S., Europe and Japan.
According to the Labor Department, an Invesco affiliate entered into undisclosed agreements with other parties to provide support for the fund. The agency said Invesco also retained some of the fund’s earnings to maintain the $1 value of its shares, rather than paying the money out to clients.
The agency said those actions resulted in losses for clients who had invested in the fund as part of their retirement savings.
Under the settlement, Invesco agreed to improve its disclosures and to restore investors’ losses.
“Invesco Trust stepped up to the plate by agreeing to compensate their ERISA plan clients,” said Phyllis C. Borzi, the Labor Department’s assistant secretary for employee benefits security.
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