US regulators target Amvescap

US securities regulators are poised to level accusations against two more mutual fund companies amid the broadening scandal in the $7,000bn industry.

Amvescap, Europe's largest publicly traded fund manager, yesterday said it was facing civil enforcement actions related to controversial trading activities. It said staff from the office of Eliot Spitzer, the state of New York's attorney-general, and from the Securities and Exchange Commission, the US chief financial regulator, had notified Invesco, a Denver based subsidiary of Amvescap, of their intention to recommend actions.

Amvescap stressed the actions related to market-timing alone - a frowned-upon but not illegal practice of allowing favoured customers to trade in mutual funds at stale prices. The company, which two weeks ago said it had not heard from Mr Spitzer's office, said it had not "knowingly permitted" late trading, a more serious practice also in the spotlight.

The company said it had steered customers wanting to indulge in market timing into "certain funds which ... would not be adversely affected by their activities".

Amvescap said it terminated trading privileges for clients representing more than $500m in assets in the last 12 months for violating restrictions on trading capacity.

Amvescap said it planned to take advantage of an opportunity to present its views to the SEC and possibly avert an enforcement action.

Meanwhile federal and state regulators are expected to bring more serious accusations as early as today against Security Trust, a Phoenix-based financial intermediary.

Security Trust, along with Bank of America, allegedly allowed Edward Stern's Canary hedge fund to make illegal trades in mutual fund shares, after the 4pm cut-off.

The trades came to light when Canary, without admitting wrongdoing, agreed to pay $40m in fines and restitution, becoming the first casualty of Mr Spitzer's funds probe.