Senior Fund Exec Charged with Insider Trading of Fund Shares
A senior executive of a mutual fund company settled insider trading charges alleging that he sold shares of a bond fund after learning that the fund company would change its pricing methodology, which would result in a significant NAV reduction. The Defendant, the CAO and SVP of the fund sponsor, participated in a meeting during which was discussed re-pricing several mortgage-backed securities, which would likely result in a significant NAV decline for a short-term bond. Before making fund implemented the valuation changes, the SEC alleges that the Defendant sold his shares in the fund and told a family member to do the same. Ultimately, the fund closed as a result of the re-pricings. The Defendant was fined and barred from the industry for at least 2 years.
OUR TAKE: There have been very few cases alleging insider trading in connection with mutual fund shares. Fund personnel should be aware that information about the fund that could affect the NAV will likely be considered material and could result in insider trading charges if trades are made before that information is disclosed to the public.