Securities Law Prof Blog

Editor: Eric C. Chaffee
Univ. of Toledo College of Law

Wednesday, December 16, 2009

SEC Finds Trautman Wasserman CEO Participated in Market Timing, Late Trading of Mutual Funds

The SEC found that Gregory O. Trautman, who was co founder, president, and chief executive officer of Trautman Wasserman & Company (TWCO), a registered broker dealer, willfully violated Section 17(a) of the Securities Act of 1933, Section 10(b) of the Securities Exchange Act of 1934, and Exchange Act Rule 10b 5 by participating in a scheme involving deceptive market timing and illegal late trading of mutual fund shares. The Commission found that Trautman, as TWCO's president and chief executive officer, engaged in numerous deceptive acts as part of the scheme: he personally engaged in the late trading of mutual funds on behalf of several customers; he deceptively sought market timing capacity from mutual funds by materially misrepresenting the nature of TWCO's trading and its impact on the funds; and he fraudulently induced customers to invest or to continue investing with TWCO by falsely assuring them of the legality of the late trading. In addition, the Commission found that Trautman willfully aided and abetted, and was a cause of, TWCO's violations of Exchange Act Section 15(c) and Exchange Act Rule 10b 3, which prohibit broker dealers from effecting transactions in, or inducing or attempting to induce, the purchase or sale of securities by means of a manipulative, deceptive, or other fraudulent device or contrivance.

For these violations, which the Commission noted "generated at least $22 million in illicit profits for TWCO and caused dilution losses to mutual fund shareholders of more than $102 million," Trautman was barred from association with any broker or dealer, ordered to cease and desist from committing future violations of the relevant federal securities law provisions, ordered to pay $608,886 in disgorgement plus prejudgment interest, and assessed a $120,000 civil money penalty.

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