==========================================START OF PAGE 1====== UNITED STATES OF AMERICA Before The SECURITIES AND EXCHANGE COMMISSION INVESTMENT COMPANY ACT OF 1940 Release No. 22461 / January 13, 1997 INVESTMENT ADVISERS ACT OF 1940 Release No. 1605 / January 13, 1997 SECURITIES EXCHANGE ACT OF 1934 Release No. 38161 / January 13, 1997 ADMINISTRATIVE PROCEEDING File No. 3-9219 -----------------------------: ORDER INSTITUTING PUBLIC In the Matter of : ADMINISTRATIVE PROCEEDINGS : PURSUANT TO SECTIONS 203 (e), RONALD V. SPEAKER : (f), and (k) OF THE INVESTMENT and : ADVISERS ACT OF 1940, SECTIONS JANUS CAPITAL CORPORATION : 9(b) and (f) OF THE INVESTMENT : COMPANY ACT OF 1940, AND SECTION : 21C OF THE SECURITIES EXCHANGE : ACT OF 1934, MAKING FINDINGS AND -----------------------------: IMPOSING REMEDIAL SANCTIONS I. The Securities and Exchange Commission (Commission) deems it appropriate and in the public interest that public administrative and cease and desist proceedings be instituted pursuant to Sections 203(f) and (k) of the Investment Advisers Act of 1940 (Advisers Act), Sections 9(b) and (f) of the Investment Company Act of 1940 (IC Act), and Section 21C of the Securities Exchange Act of 1934 (Exchange Act) against Ronald V. Speaker (Speaker) and that public administrative proceedings be instituted pursuant to Section 203(e) of the Advisers Act against Janus Capital Corporation (Janus). In anticipation of the institution of these administrative proceedings, Speaker and Janus have submitted Offers of Settlement which the Commission has determined to accept. Solely for the purpose of these proceedings and any other proceedings brought by or on behalf of the Commission or in which the Commission is a party, and without admitting or denying the findings herein, except for those contained in paragraph II. A. below, which are admitted, Speaker and Janus consent to the entry of this Order Instituting Proceedings, Making Findings and Imposing Remedial Sanctions. ==========================================START OF PAGE 2====== II. Accordingly, it is ordered that pursuant to Sections 203(e), (f) and (k) of the Advisers Act, Sections 9(b) and (f) of the IC Act, and Section 21C of the Exchange Act these proceedings are hereby instituted. On the basis of this Order and the Respondents' Offers of Settlement, the Commission makes the following findings: A. The Respondents Since 1978, Janus has been registered with the Commission as an investment adviser (801-13991) pursuant to Section 203(c) of the Advisers Act. Janus has its headquarters in Denver, Colorado. Janus acts as an investment adviser to several registered mutual funds. Speaker is an employee of Janus and is an executive vice- president of a registered mutual fund ("the fund") for which Janus is the investment adviser. He has been the portfolio manager for the fund since December 1991 and is responsible for making investment decisions for the fund, including the purchase and sale of securities. At the time of the trades at issue the fund's prospectus generally disclosed that portfolio managers such as Speaker may engage in personal trading of securities. B. Speaker's Trading Activities On January 12, 1993, Speaker, in his capacity as the portfolio manager for the fund, was contacted by an institutional salesman for a broker-dealer who offered the opportunity to purchase Time Warner 9 1/8% Debentures due 2013 (debentures) at a certain offering price. Speaker rejected the offer on behalf of the fund. Later that day he learned of a bid from another broker- dealer for the debentures at a price higher than the price he was previously offered. This opportunity to profit by buying and shortly thereafter selling the debentures was one of limited availability. ==========================================START OF PAGE 3====== While purchasing and selling the same securities on the same day would have been a deviation from the fund's normal method of investing, the fund was legally and financially able to take advantage of this opportunity. Without disclosing his conflict of interest to, and obtaining the prior consent of the fund (or a disinterested Janus employee authorized to waive this opportunity on the fund's behalf), Speaker personally purchased $10 million of the debentures in two transactions and shortly thereafter sold the debentures that same day for a total profit of $16,000. Speaker purchased and sold the debentures through a private trading account that he maintained through Janus at a Denver bank. Speaker was able to purchase the $10 million of debentures because Janus had authorized him to use its institutional clearing account for the settlement of his personal trades which was administered by the Denver bank on a Delivery versus Payment or Receipt versus Payment basis. Speaker then paid for his purchases of the $10 million of debentures with proceeds from his offsetting sales. C. Speaker s Violations of the Securities Laws Speaker as the portfolio manager for the fund is a fiduciary. Investment advisers and their associated persons, as fiduciaries, are under the highest obligation to avoid conflicts of interest with their clients by disclosing personal trading practices that may affect their recommendations. Securities and Exchange Commission v. Capital Gains Research Bureau, Inc., 375 U.S. 180, 194-197 (1963). Portfolio managers generally may not engage in personal trading that presents a conflict with the interests of their clients absent full disclosure and consent from the clients. See, Prevention of Certain Unlawful Activities, IC Act Rel. No. 11421 (October 31, 1980) (adopting Rule 17j-1 under the provisions of Section 17(j) of the IC Act). -[1]- An investor seeking the advice of a registered investment adviser must ... be permitted to evaluate such overlapping motivations, through appropriate disclosure, in deciding whether an adviser is serving two masters or only one, especially ... if one of the masters happens to be economic self-interest. United States v. Mississippi Valley Co., 364 U.S. 520, 549 (1961) [footnote ---------FOOTNOTES---------- -[1]- See also, In the Matter of Joan Conan, Advisers Act Rel. No. 1466, 57 SEC Docket 2239 (September 30, 1994); In the Matter of Kemper Financial Services, Advisers Act Rel. No. 1494, 59 SEC Docket 1470 (June 6, 1995). ==========================================START OF PAGE 4====== omitted]. Capital Gains, 375 U.S. at 196. Consistent with this policy, the Commission has held that personal investments by managers require particularly careful scrutiny. See, In the Matter of Chancellor Capital Management, Advisers Act Rel. No. 1447, 57 SEC Docket 2204 (October 18, 1994), where the Commission emphasized the seriousness of the obligation of investment advisers and their associated persons to identify potential conflicts of interest and make complete and accurate disclosure of those conflicts. Speaker breached his fiduciary duty to the fund by taking the investment opportunity in the debentures without disclosing the opportunity to, and obtaining the prior consent of the fund (or a disinterested Janus employee authorized to waive this opportunity on the fund's behalf). Speaker thereby willfully violated Sections 206(1) and (2) of the Advisers Act; Section 17(j) of the IC Act and Rule 17j-1(a) thereunder; -[2]- Section 10(b) and Rule 10b-5 thereunder of the Exchange Act. D. Janus' Supervision of Speaker At the time of Speaker's trades Janus required its employees, including Speaker, to provide it with complete ---------FOOTNOTES---------- -[2]- As an affiliated person of Janus, the investment adviser to the fund which was a portfolio of a registered investment company, Speaker was prohibited by Rule 17j-1(a) from engaging in certain conduct in connection with his purchase or sale of any "security held or to be acquired" by the fund. Rule 17j-1(e)(6) defines a "security held or to be acquired" by a registered investment company as including any security which, within the most recent 15 days, "is being or has been considered by such company or its investment adviser for purchase by such company" (emphasis added). Speaker rejected the offer to acquire the debentures for the fund and thereby "considered" acquiring them for the fund before purchasing them for himself. His later purchase within 15 days of "considering" the purchase for the fund without disclosing the trades to the fund and obtaining the prior consent of the fund, or of a disinterested Janus employee authorized to waive this opportunity on the fund's behalf violated Section 17(j) of the IC Act and Rule 17j-1(a) thereunder. ==========================================START OF PAGE 5====== information regarding their personal trades. After Speaker's trades occurred they were reviewed by Janus' Compliance Department primarily for conflicts with trading activity by the fund. After reviewing Speaker's trades Janus took no further action. Janus had no mechanism for disclosing the trades to the fund and obtaining the prior consent of the fund, or of a disinterested Janus employee authorized to waive this opportunity on the fund's behalf. Under the circumstances here, Janus failed reasonably to supervise Speaker within the meaning of Section 203(e)(5) of the Advisers Act. III. In view of the foregoing, it is in the public interest to impose the sanctions specified in the Offer of Settlement. Accordingly, IT IS HEREBY ORDERED THAT: A) Speaker be, and hereby is, pursuant to Section 21C of the Exchange Act, Section 203(k) of the Advisers Act, and Section 9(f) of the IC Act, ordered to cease and desist from committing or causing any violations and any future violations of Section 10(b) and Rule 10b-5 thereunder of the Exchange Act; Sections 206(1) and 206(2) of the Advisers Act; and Section 17(j) of the IC Act and Rule 17j-1(a) thereunder; B) Speaker be, and hereby is, suspended from association with any investment adviser, investment company, broker, dealer, or municipal securities dealer for a period of ninety (90) days, effective on the second Monday following the entry of this Order; C) Speaker be, and hereby is, pursuant to Section 9(e) of the IC Act and Section 203(j) of the Advisers Act, ordered to, within ten (10) days of the date of this Order, disgorge $16,000, plus prejudgment interest of $5,199 to the United States Treasury. Such payment shall be: (A) made by United States postal money order, certified check, bank cashier's check or bank money order; (B) made payable to the Securities and Exchange Commission; (C) hand-delivered to the Comptroller, Securities and Exchange Commission, 450 Fifth Street, N.W., Washington, D.C. 20549; and (D) submitted under cover letter identifying Speaker as a Respondent in these proceedings, the file number of these proceedings and the Commission's case number (D-1944), a copy of which shall be sent to Daniel F. Shea, Regional Director, Central Regional Office, 1801 California Street, Suite 4800, Denver, ==========================================START OF PAGE 6====== Colorado 80202; D) Speaker be, and hereby is, pursuant to Section 9(d) of the IC Act and Section 203(i)(1)(A) of the Advisers Act, ordered to, within ten (10) days of the date of this Order, pay a civil penalty of $16,000. Such payment shall be: (A) made by United States postal money order, certified check, bank cashier's check or bank money order; (B) made payable to the Securities and Exchange Commission; (C) hand-delivered to the Comptroller, Securities and Exchange Commission, 450 Fifth Street, N.W., Washington, D.C. 20549; and (D) submitted under cover letter identifying Speaker as a Respondent in these proceedings, the file number of these proceedings and the Commission's case number (D-1944), a copy of which shall be sent to Daniel F. Shea, Regional Director, Central Regional Office, 1801 California Street, Suite 4800, Denver, Colorado 80202; E) Speaker shall comply with the undertakings contained in his offer of settlement to refrain from engaging in, directly or indirectly, any personal securities transactions involving publicly traded securities, other than as an individual investor in registered investment companies or securities issued by his employer or affiliates thereof, for three years from the date of entry of this order if during that time he is a person associated with an investment adviser or an affiliated person of an investment company. F) Speaker comply with his undertaking to provide to the Commission within thirty days after the end of the time periods described above in paragraphs III. B and E, an affidavit that he has complied fully with the sanctions described there; G) Janus be, and hereby is, censured; and H) Janus be, and hereby is, pursuant to Section 9(d) of the IC Act and Section 203(i)(1)(D) of the Advisers Act, ordered to, within ten days of the date of this Order, pay a civil penalty of $25,000. Such payment shall be: (A) made by United States postal money order, certified check, bank cashier's check or bank money order; (B) made payable to the Securities and Exchange Commission; (C) hand-delivered to the Comptroller, Securities and Exchange Commission, 450 Fifth Street, N.W., ==========================================START OF PAGE 7====== Washington, D.C. 20549; and (D) submitted under cover letter identifying Janus as a Respondent in these proceedings, the file number of these proceedings and the Commission's case number (D- 1944), a copy of which shall be sent to Daniel F. Shea, Regional Director, Central Regional Office, 1801 California Street, Suite 4800, Denver, Colorado 80202. By the Commission. Jonathan G. Katz Secretary