NEW YORK (AP) – A former hedge fund broker pleaded guilty to illegal late trading charges as a probe into the mutual fund industry’s practices continues to gain momentum.
The plea by ex-Millennium Partners trader Steve Markovitz makes him the second mutual fund insider to be implicated in wrongdoing as part of a probe of the industry by New York State Attorney General Eliot Spitzer.
Markovitz, 41, admitted he and other traders with the $4 billion Millennium Partners hedge fund bought and sold mutual fund shares at the closing price after the New York market closed.
His plea requires him to cooperate with the investigation of the mutual fund industry.
Under Securities and Exchange Commission rules, trades made after 4 p.m. Eastern time must be made at the next day’s price, set at market close. Investors who engage in late trading can take advantage of events that occurred after the markets close and profit in ways other shareholders can’t.
Millennium’s illegal trades took place roughly from early last year until July, the complaint said. Assistant Attorney General Kevin Suttlehan would not say how much profit might have been generated for Millennium, which has more than $4 billion under management.
The complaint did not say who executed the orders, or which funds were involved.
This “is a clear step forward in the investigation and prosecution of wrongdoing in the mutual fund industry,” Spitzer said.
In entering his plea, Markovitz admitted that he and other traders “intentionally engaged in fraud, deception (and) concealment.”
Markovitz, of Manhattan, is free without bail. He and his lawyers declined comment as they left court Thursday.
Last month, hedge fund Canary Capital Partners LLC and its managers agreed to pay $30 million in restitution for profits generated from unlawful trading and a $10 million penalty.
Soon after, Spitzer charged a former Bank of America broker, Theodore Sihpol III, with larceny and securities law violations for helping Canary obtain its after-hours mutual fund trades.
State Supreme Court Justice James Yates told Markovitz that his sentence on Dec. 15 could range from no jail time to a maximum of four years in prison.
Yates noted that the defendant’s plea agreement required him to cooperate with the attorney general’s investigation and to make himself available to testify. The judge said his sentence will depend in part on recommendations from prosecutors.
Hedge funds typically require investors to have substantial assets and make huge deposits. They often offer sizable returns because of their huge risks.
Meanwhile, the SEC filed a civil case against Markovitz related to the securities fraud.
In a partial settlement of the SEC action, Markovitz agreed that he would be barred for life from the securities industry.
