Friday, December 2, 2005

SEC Settles Mutual Fund Late Trading Case Against Hedge Fund

The SEC announced that it had settled an administrative action against Millennium Partners, a hedge fund, for late trading and market timing transactions in mutual funds.  Millenium Partners, which manages over $5 billion, agreed to disgorge $148 million in profits, Israel Englander, its managing member, will pay a $30 million civil penalty, and Terrence Feeney, its chief operating officer, will pay a $2 million civil penalty.  According to the SEC's administrative order (here):

From at least 1999 to 2003, Millennium Partners, Millennium Management, and Millennium International Management generated tens of millions of dollars in profits through market timing trades of mutual fund shares, a practice which mutual funds generally discouraged.  Englander, Feeney, [and two other officers] knew that mutual funds sought to detect market timers and frequently blocked Millennium’s trades and, therefore, devised and carried out a fraudulent scheme to avoid detection and circumvent restrictions that the mutual funds imposed on market timing. Specifically, Millennium: (1) created approximately 100 legal entities to hide that Millennium was behind the mutual fund trading; (2) used those entities to create in excess of 1,000 accounts; (3) structured its trading to avoid detection by the mutual funds; (4) used omnibus accounts and variable annuities to further hide Millennium’s identity; and (5) took advantage of certain "sticky" asset arrangements.

The settlement marks the first case involving a hedge fund penalized for engaging in market timing.  An AP story (here) discusses the settlement. (ph)

http://lawprofessors.typepad.com/whitecollarcrime_blog/2005/12/sec_settles_lat.html

Civil Enforcement, Securities | Permalink

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Comments

Is there a probotion against trading an investors account after he has given adequate notice of redemttion-and charging his account with losses that happen some time after the redemption date??

Posted by: THOMAS BUCKLEY | Sep 7, 2008 8:44:38 AM

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