Mutual Fund Traders Personally Liable for Accepting Gifts to Direct Trades
Seven equity traders and their supervisor agreed to pay over $1 Million in fines, disgorgement, and interest for receiving personal gifts in order to direct mutual fund trading business. The SEC charged that the traders individually violated Section 17(e)(1) of the Investment Company Act which prohibits any affiliated person of a registered investment company from accepting any source of compensation for the purchase or sale of any property to or for such investment company. The supervisor was also charged with disclosure and best execution violations.
OUR TAKE: Most interesting is the SEC stating that individual employees of fund companies can be held personally and primarily liable as affiliated persons under Section 17. The SEC also explained that a “willful” violation only means that the person knew what they were doing, not that they knew it violated applicable law.