A former star in the mutual fund industry has been charged with fraudulently concealing deals in which his son would secretly receive commissions from his trading activity.
The Securities and Exchange Commission filed a complaint in U.S. District Court in Colorado this week against John J. Kaweske, former portfolio manager for In-vesco, a major mutual fund company based in Englewood, Colo.The thrust of the charges involves violations of laws aimed at preventing conflicts of interest in the business dealings of mutual fund managers.
"This is kind of a message case from the commission with their continuing concern about the activity of portfolio managers and their responsibilities to funds and fund shareholders," said Robert H. Davenport, SEC regional director in Denver.
Kaweske was fired in January 1994 from his job as senior vice president because he failed to fully inform the company about his personal investments. Kaweske said at the time he wasn't charged with anything illegal but said he considered the company's charges to be highly technical.
Kaweske's attorney, Andrew Levander of New York, didn't return telephone calls seeking comment. Invesco issued a statement saying the case doesn't name the company or current employees and that the firm cooperated with the SEC during its 13-month probe. The SEC case seeks civil penalties and a court injunction to permanently prevent Kaweske from such future conduct.
The SEC's Denver regional office charged Kaweske, "as part of a fraudulent scheme to deceive Invesco and its funds," had concealed from management "secret arrangements whereby his son directly and indirectly received commissions" from securities Kaweske purchased for Invesco funds.
The SEC charged Kaweske's son, John D. Kaweske, received a finder's fee after two Invesco-managed funds invested in a private securities placement of two com-panies, Crown Laboratories Inc. of Las Vegas and MedClone Inc. of Los Angeles. Such a finder's fee was "contrary to the specific prohibitions by Invesco," the SEC said.
The SEC also charged Kaweske concealed from Invesco his position as founder, director and shareholder of ID Biomedical Corp. of Vancouver, British Columbia. Kaweske caused two funds advised by Invesco to purchase shares of ID Biomedical or its affiliates without telling Invesco management about his business ties to the firm.
And the SEC said Kaweske failed to report at least 47 personal securities transactions to Invesco management, which the agency said was a violation of the Investment Company Act, the main law governing mutual funds. He was also charged with violations of the Investment Advisers Act, which governs buy and sell recommendations by securities professionals.