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Ia 2451

Exhibit of Press Release: American Express Financial Corporation, Now Known as Ameriprise Financial, Inc., to Pay $15 Million to Settle Market Timing Charges; 2005-169; Dec. 1, 2005

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Scheme: unregistered-securities (100%)

Classified unregistered-securities(confidence 100%). EDGAR detection: forms Form D/S-1· recall 41% / precision 30%. detection rule →

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Dollar amounts 2

$10.00M $10 million $10M–$100M
$5.00M $5 million $1M–$10M

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Commission institutes proceedings against American Express Financial Corporation (now known as Ameriprise Financial, Inc.)
Respondent submitted offer of settlement to the Commission
Commission accepted the Offer of Settlement
AEFC is a Delaware corporation headquartered in Minneapolis, MN
AEFC has been registered with the Commission as an investment adviser since 1979
AEFC was wholly-owned by American Express Company prior to September 30, 2005
AEFC became publicly-traded company listed on the New York Stock Exchange as AMP on October 3, 2005
AEFC serves as investment adviser to the American Express Funds
AEFC failed to adequately disclose material facts to shareholders in the AXP Funds
AEFC allowed certain shareholders to market time the mutual funds contrary to prospectus disclosures
AEFC allowed market timer to market time variable annuity products from May 2002 to October 2003
AEFC failed to implement procedures to detect and prevent market timing from January 1, 2002 to September 30, 2003

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Ia 2451 · Source

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________________________

UNITED STATES OF AMERICA

Before the

SECURITIES AND EXCHANGE COMMISSION

INVESTMENT ADVISERS ACT OF 1940
Release No. 2451 / December 1, 2005

INVESTMENT COMPANY ACT OF 1940
Release No. 27170 / December 1, 2005

ADMINISTRATIVE PROCEEDING
FILE NO. 3-12114

:
: ORDER INSTITUTING ADMINISTRATIVE

In the Matter of : AND CEASE-AND-DESIST PROCEEDINGS,
: MAKING FINDINGS, AND IMPOSING

American Express :
Financial Corporation :
(now known as Ameriprise :
Financial, Inc.), :

:
Respondent. :

REMEDIAL SANCTIONS AND A CEASE-
AND-DESIST ORDER PURSUANT TO
SECTIONS 203(e) AND 203(k) OF THE
INVESTMENT ADVISERS ACT OF 1940
AND SECTIONS 9(b) AND 9(f) OF THE
INVESTMENT COMPANY ACT OF 1940

________________________:

The Securities and Exchange Commission (“Commission”) deems it appropriate and
in the public interest that public administrative and cease-and-desist proceedings be, and
hereby are, instituted pursuant to Sections 203(e) and 203(k) of the Investment Advisers Act
of 1940 (“Advisers Act”) and Sections 9(b) and 9(f) of the Investment Company Act of
1940 (“Investment Company Act”) against American Express Financial Corporation (now
known as Ameriprise Financial, Inc.) (“AEFC” or “Respondent”).

II.

In anticipation of the institution of these proceedings, Respondent has submitted
an Offer of Settlement (the “Offer”) 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 to which the Commission is a party, and without admitting
or denying the findings herein, except as to the Commission’s jurisdiction over it and the
subject matter of these proceedings, Respondent consents to the entry of this Order
Instituting Administrative and Cease-and-Desist Proceedings, Making Findings, and
Imposing Remedial Sanctions and a Cease-and-Desist Order Pursuant to Sections 203(e)

and 203(k) of the Advisers Act and Sections 9(b) and 9(f) of the Investment Company
Act (“Order”), as set forth below.

III.

On the basis of this Order and Respondent’s Offer, the Commission finds1 that:

Respondent

1. AEFC2, now known as Ameriprise Financial, Inc., is a Delaware corporation with
headquarters located in Minneapolis, MN. AEFC has been registered with the
Commission as an investment adviser since 1979. Prior to September 30, 2005, AEFC
was wholly-owned by American Express Company. On October 3, 2005, AEFC became
a publicly-traded company listed on the New York Stock Exchange as AMP. AEFC
serves as the investment adviser to its proprietary funds, the American Express Funds
(“AXP Funds”).

Background

2. This matter arises from AEFC’s failure to adequately disclose certain material
facts to shareholders in the AXP Funds for which it acts as an investment adviser.
Specifically, AEFC did not adequately disclose to shareholders in the AXP Funds market
timing activities that were inconsistent with the disclosures in the AXP Funds’
prospectuses.

3. After changing the AXP Funds’ prospectus disclosures, AEFC acted contrary to
these prospectus disclosures when it allowed certain shareholders to market time the
mutual funds that it advised. From at least January 1, 2002 to August 31, 2002, AEFC
allowed certain identified market timers to continue to market time, contrary to the AXP
Funds’ new prospectus disclosures that indicated that the AXP Funds prohibited market
timing. From May 2002 to October 2003, AEFC also allowed one identified market
timer to market time variable annuity products contrary to the variable annuity products’
prospectus disclosures. Finally, from January 1, 2002 to September 30, 2003, AEFC
failed to implement procedures to detect and prevent market timing in 401(k) plans for
employees of AEFC and related companies or disclose that there were no such
procedures in place to prevent a number of past and present employees of AEFC and
related companies from market timing various AXP Funds through their 401(k)
retirement plans contrary to prospectus disclosures.

1 The findings herein are made pursuant to Respondent’s Offer of Settlement and are not binding on any

other person or entity in this or any other proceeding.

2 As used herein, the name “AEFC” refers to American Express Financial Corporation and all predecessor

and successor entities, including Ameriprise Financial, Inc.

Improper Market Timing

4. “Market timing” or “timing” refers to (a) frequent buying and selling of shares of
the same mutual fund or (b) buying or selling mutual fund shares in order to exploit
inefficiencies in mutual fund pricing. Market timing, while not illegal per se, can harm
other mutual fund shareholders because it can dilute the value of their shares if the
market timer is exploiting pricing inefficiencies, disrupt the management of the mutual
fund’s investment portfolio or cause the targeted mutual fund to incur costs borne by
other shareholders to accommodate frequent buying and selling of shares by the market
timer.

5. In January 2002, AEFC changed the disclosures in the AXP Funds’ prospectuses
to explicitly prohibit market timing. AEFC filed registration statements with the
Commission that incorporated these new prospectuses. The AXP Funds’ prospectuses
stated:

The Fund does not permit market timing. Do not invest in the Fund if you are a
market timer.

Excessive trading (market timing) or other abusive short-term trading practices
may disrupt portfolio management strategies, harm fund performance and
increase fund expenses.

6. After the AXP Funds issued the new prospectus disclosures that prohibited
market timing in January 2002, AEFC still permitted approximately 20 market timers to
continue market timing the AXP Funds for an additional time period that lasted
approximately six to eight months.

7. The Director of Mutual Fund Products at AEFC described the rationale for
providing the exceptions as providing “additional flexibility to these market timing
customers based upon the magnitude of their investments.” These exceptions were not
disclosed in the respective mutual fund prospectuses, nor were the boards of directors of
the funds informed of these arrangements.

Improper Market Timing in 401(k) Plans

8. From January 1, 2002 through September 30, 2003, 27 past and present
employees of AEFC and related companies market timed various AXP Funds through
their 401(k) retirement plans. Although the AXP Funds’ prospectuses banned market
timing starting on January 1, 2002, AEFC did not put in place any procedures to monitor
the employees’ 401(k) accounts for frequent trading or market timing activity or disclose
to investors that there were no such procedures until October 2003.

Improper Market Timing in Variable Annuity Products

9. Anti-market timing language was added to the variable annuity product
prospectuses sold by AEFC in May 2002. Prior to this addition, the variable annuity
contracts referred the contract holder back to the fund prospectuses to determine whether
a particular mutual fund permitted market timing. AEFC filed registration statements
with the Commission that incorporated these new variable annuity product prospectuses.

10. After the variable annuity prospectus disclosures were changed in May 2002,
AEFC allowed a known market timer to continue to market time AEFC’s variable
annuity products until October 2003. This exception was not disclosed in the variable
annuity product prospectuses and the AXP Funds’ boards of directors were not informed
of this arrangement.

11. As a result of the conduct described above in paragraphs 4 through 10, AEFC
willfully violated:

a. Section 206(2) of the Advisers Act in that, while acting as an investment
adviser, it engaged in transactions, practices, or courses of business which
operated or would operate as a fraud or deceit upon clients or prospective clients;
and

b. Section 34(b) of the Investment Company Act in that it made untrue
statements of material fact in a registration statement, application, report, account,
record, or other document filed or transmitted pursuant to the Investment
Company Act, or omitted to state therein any fact necessary in order to prevent
the statements made therein, in the light of the circumstances under which they
were made, from being materially misleading.

12. By permitting market timing in its variable annuity products, as described above
in paragraphs 9 and 10, AEFC also willfully violated Section 206(1) of the Advisers Act
in that it, while acting as an investment adviser, employed devices, schemes, or artifices
to defraud clients or prospective clients.

Undertakings

13. AEFC undertakes the following3:

a. At least once every year, starting in 2005, AEFC shall make presentations
to its Board of Directors and the Boards of Directors of the AXP Funds (or any
committees designated by the Boards of Directors to perform similar functions)
that include an overview of AEFC’s policies and procedures to prevent market
timing, any material changes to these policies and procedures and whether

3 The undertakings and sanctions set forth herein shall be binding upon all successors to and affiliates of
Respondent.

AEFC’s and the AXP Funds’ disclosures related to market timing are in
compliance with this Order and the federal securities laws.

14. Independent Distribution Consultant. AEFC shall retain, within 60 days of the
date of entry of this Order, the services of an Independent Distribution Consultant not
unacceptable to the staff of the Commission. AEFC shall exclusively bear all costs,
including compensation and expenses, associated with the retention of the Independent
Distribution Consultant. AEFC shall cooperate fully with the Independent Distribution
Consultant and shall provide the Independent Distribution Consultant with access to its
files, books, records, and personnel as reasonably requested for his or her review. AEFC
shall develop a Distribution Plan for the distribution of all of the disgorgement and civil
penalties ordered in Section IV.C. below, and any interest or earnings thereon, in
accordance with a methodology developed in consultation with the Independent
Distribution Consultant and acceptable to the staff of the Commission. The Distribution
Plan shall address how the monetary sums attributable to AEFC’s violations related to the
market timing described herein shall be distributed to benefit investors in the AXP Funds
for market timing activity that took place between January 1, 2002 and September 30,
2003.

a. AEFC shall submit the Distribution Plan to the Independent Consultant
and the staff of the Commission no more than 120 days after the date of entry of
this Order.

b. The Distribution Plan shall be binding unless, within 180 days after the
date of entry of this Order, the staff of the Commission advises AEFC and the
Independent Distribution Consultant, in writing, of any determination or
calculation from the Distribution Plan that it considers to be inappropriate and
states in writing the reasons for considering such determination or calculation
inappropriate.

c. With respect to any determination or calculation with which AEFC, the
Independent Distribution Consultant or the staff of the Commission do not agree,
such parties shall attempt in good faith to reach an agreement within 210 days of
the date of entry of this Order. In the event that AEFC, the Independent
Distribution Consultant and the staff of the Commission are unable to agree on an
alternative determination or calculation, the determinations and calculations of the
Independent Distribution Consultant shall be binding.

d. Within 225 days of the date of entry of this Order, AEFC shall submit the
Distribution Plan for the administration and distribution of disgorgement and
penalty funds pursuant to Rule 1101 [17 C.F.R. § 201.1101] of the Commission’s
Rules Regarding Disgorgement and Fair Fund Plans. Following a Commission
order approving a final plan of disgorgement, as provided in Rule 1104 [17 C.F.R.
§ 201.1104] of the Commission’s Rules Regarding Disgorgement and Fair Fund
Plans, AEFC shall require the Independent Distribution Consultant, with AEFC,

to take all necessary and appropriate steps to administer the final plan for
distribution of disgorgement and penalty funds.

e. To ensure the independence of the Independent Distribution Consultant,
AEFC: (i) shall not have the authority to terminate the Independent Distribution
Consultant, without the prior written approval of the Commission’s staff; (ii) shall
compensate the Independent Distribution Consultant and persons engaged to
assist the Independent Distribution Consultant for services rendered pursuant to
this Order at their reasonable and customary rates; and (iii) shall not be in and
shall not have an attorney-client relationship with the Independent Distribution
Consultant and shall not seek to invoke the attorney-client privilege or any other
doctrine or privilege to prevent the Independent Distribution Consultant from
transmitting any information, reports or documents to the Commission or the
Commission’s staff.

f. AEFC shall require that the Independent Distribution Consultant, for the
period of the engagement and for a period of two years from completion of the
engagement, not enter into any employment, consultant, attorney-client, auditing
or other professional relationship with AEFC, or any of its present or former
affiliates, parent companies, directors, officers, employees, or agents acting in
their capacity as such, provided, however, that notwithstanding the foregoing the
Independent Distribution Consultant may serve as Independent Distribution
Consultant pursuant to the Order Instituting Administrative and Cease-and-Desist
Proceedings, Making Findings and Imposing Remedial Sanctions and a Cease-
and-Desist Order in the matter of American Express Financial Advisors Inc.
AEFC shall require that any firm with which the Independent Distribution
Consultant is affiliated in performance of his or her duties under the Order not,
without prior written consent of a majority of the independent Trustees or
Directors and the staff of the Commission, enter into any employment, consultant,
attorney-client, auditing or other professional relationship with AEFC, or any of
its present or former affiliates, parent companies, directors, officers, employees,
or agents acting in their capacity as such for the period of the engagement and for
a period of two years after the engagement.

15. For good cause shown, and upon a timely application from AEFC or the
Independent Distribution Consultant, the Commission’s staff may extend any of the
procedural dates set forth above.

IV.

In view of the foregoing, the Commission deems it appropriate and in the public
interest to impose the sanctions agreed to in AEFC’s Offer.

Accordingly, pursuant to Sections 203(e) and 203(k) of the Advisers Act and
Sections 9(b) and 9(f) of the Investment Company Act it is hereby ORDERED that:

A. AEFC is censured.

B. AEFC shall cease and desist from committing or causing any violations and any
future violations of Sections 206(1) and 206(2) of the Advisers Act and Section 34(b) of
the Investment Company Act.

C. IT IS FURTHER ORDERED that:
1. AEFC shall, within 60 days of the entry of this Order, pay disgorgement
plus prejudgment interest in the total amount of $10 million (“Disgorgement”).
AEFC also shall, within 60 days of the entry of this Order, pay a civil monetary
penalty in the amount of $5 million (“Penalties”). Such payments 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 or mailed to the Office of Financial
Management, Securities and Exchange Commission, Operations Center, 6432
General Green Way, Alexandria, Stop 0-3, VA 22312; and (D) submitted under
cover letter that identifies AEFC as a Respondent in these proceedings, the file
number of these proceedings, a copy of which cover letter and money order or
check shall be sent to Merri Jo Gillette, Division of Enforcement, Securities and
Exchange Commission, 175 West Jackson Blvd., Suite 900, Chicago, Illinois
60604.

2. There shall be, pursuant to Section 308(a) of the Sarbanes-Oxley Act of
2002, a Fair Fund established for the funds described in Section C. Regardless of
whether any such Fair Fund distribution is made, amounts ordered to be paid as
Penalties pursuant to this Order shall be treated as penalties paid to the
government for all purposes, including all tax purposes. To preserve the deterrent
effect of the civil penalty, AEFC agrees that it shall not, after offset or reduction
in any Related Investor Action based on AEFC’s payment of disgorgement in this
action, further benefit by offset or reduction of any part of AEFC’s payment of
Penalties in this action (“Penalty Offset”). If the court in any Related Investor
Action grants such a Penalty Offset, AEFC agrees that it shall, within 30 days
after entry of a final order granting the Penalty Offset, notify the Commission’s
counsel in this action and pay the amount of the Penalty Offset to the United
States Treasury or to a Fair Fund, as the Commission directs. Such a payment
shall not be deemed an additional civil penalty and shall not be deemed to change
the amount of the Penalties imposed in this proceeding. For purposes of this
paragraph, a “Related Investor Action” means a private damages action brought
against AEFC by or on behalf of one or more investors based on substantially the
same facts as alleged in the Order instituted by the Commission in this
proceeding.

D. AEFC shall comply with the undertakings enumerated in Section III. 13 through
15.

By the Commission.

Jonathan G. Katz
Secretary

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