BROKER GOING TO JAIL FOR ASSISTING MARKET-TIMING
In the first criminal case of its kind, a broker was sentenced to serve a one-year prison sentence for assisting hedge fund clients to market time mutual funds. According to the SEC, the defendant engaged in securities fraud when it engaged in a number of practices to conceal the identity of its hedge fund clients to allow more than 26,000 market timing trades. One of the hedge fund clients was also sentenced to three years probation and ordered to pay over $1 Million in fines and penalties. The criminal charges were in addition to previous civil charges brought by the SEC that resulted in fines and penalties.
OUR TAKE: If the SEC can bring criminal charges against a broker and a hedge fund for market timing, we suppose that it can also bring criminal charges against funds (and their officers?) that are complicit in allowing market timing. The SEC wants to make clear that not only will it ensure that market timers do not profit, but that they could also go to prison.