In the world of mutual funds, "market timing" allows a mutual fund trader to exploit lags in the updating of a fund's "net asset value".  Fund X, for instance, computes its NAV at 4:00 p.m. Eastern, when the major securities markets close in New York.  The price of the fund's shares will reflect that NAV for at least 24 hours. 

The market timer knows that Fund X invests in European stocks.  If those stocks have increased in value on European exchanges at their closing time but before the fund recomputes its NAV, the market timer can buy shares in the fund at a price that doesn't take account of the European upswing.  The trader can then sell the fund shares at a profit the next day, by which time the fund's NAV will have jumped, with little or no risk.

Today the Fourth Circuit sustained a securities fraud complaint that accused Janus Capital Management of lying about its program to prevent market timing.  JCM made the false statements, the complaint alleged, in prospectuses for mutual funds that JCM advised.  The court held that, although the prospecti didn't attribute the statements to JCM, reasonable investors "would have inferred" that, as the funds' investment adviser, "it must least have approved these statements."  In re Mutual Funds Investment Litig., No. 07-1607, slip op. at 26 (4th Cir. May 7, 2009).