Securities Law Prof Blog

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

Wednesday, June 27, 2007

SEC Charges Simpson Capital with Late Trading

The SEC announced that on June 27 it filed civil fraud  charges against Simpson Capital Management, Inc. (Simpson  Capital),  a  hedge fund manager, Robert A. Simpson, its president and owner, and John  C. Dowling, Simpson Capital's head trader. In its complaint, the Commission alleges that, between May 2000 and September 2003,  Simpson and Dowling defrauded hundreds of mutual funds and their shareholders of approximately $57 million when  they  placed thousands of illegal "late trades" after  the  close  of  the  market, which enabled them to trade based on after-market events  while  still obtaining the prices in effect before the market  closed.  Defendants' late trades  were  part  of  a  profitable  investment  strategy  that depended for its success on mutual fund trading based  on  information obtained after the markets closed at 4:00 p.m. ET.

   The complaint alleges that Simpson Capital is the  investment  adviser to two hedge funds, Simpson Partners, L.P. and Simpson Offshore,  Ltd. (collectively, the Simpson Funds).  Between  May  2000  and  September 2003, Simpson Capital, through Simpson and Dowling, used five separate introducing broker-dealers to place more than 10,700  trades  in  over 375 mutual funds after 4:00  p.m.  ET,  and  improperly  received  the current day's net asset value (NAV). The  Commission's  complaint  further  alleges  that  Simpson  was  an investor in the Simpson Funds and,  as  a  result  of  the  fraudulent trading, Simpson personally earned at least $19 million  in  fees  and profits. Dowling received more than $996,000  in  salary  and  bonuses during the late trading scheme.  The  Commission's  complaint  alleges  that  by  their  conduct,   the defendants violated Section 10(b) of the Securities  Exchange  Act  of 1934 and Rule  10b-5  thereunder.

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