WASHINGTON (AP) – The Securities and Exchange Commission filed civil fraud charges Monday against a Las Vegas man and his brokerage firm for their alleged market timing and late trading in mutualfunds managed by Alliance Capital Management.
The SEC said from at least 2001 to 2003, Calugar, through Security Brokerage Inc., made profits of about $175 million from improper late trading and market timing.
Calugar allegedly transferred $50 million of proceeds from his scheme out of another mutual fund company on Dec. 18, the same day the SEC instituted an enforcement action against New York-based Alliance Capital.
Based on these allegations, a federal judge issued a temporary restraining order against Calugar and Security Brokerage, freezing their assets and ordering them to preserve financial documents.
“When we learned Calugar was seeking to transfer $50 million out of his mutual fund account, we took prompt action,” said the SEC’s director of enforcement Stephen Cutler.
According to the SEC, Calugar, 49, agreed to make long-term investments in Alliance Capital hedge funds in exchange for Alliance permitting him to engage in market timing in its mutual funds.
Alliance could then allegedly draw fees off the amount of assets in the hedge fund, while Calugar profited from quick in-and-out trades and late trading.
Calugar made a similar proposal to Massachusetts Financial Services, the SEC alleges, but that firm turned him down. Still, he was able to engage in some market timing with MFS, the SEC said in its action.
Calugar also engaged in late trading, the SEC said, which allows a trader to profit from market events that occur after 4 p.m. EST, but that are not reflected in the mutual fund’s price.
Randall Lee, regional director of the SEC’s Pacific Regional Office, said “Calugar’s market timing and late trading were phenomenally profitable to him and came at the expense of long-term mutual fund shareholders.”
The agency’s settled action against Alliance identified Calugar as the largest market timer at the fund company.
Sandra Harris, an associate regional director at the SEC’s Pacific office, said a hearing is set for Jan. 5, at which the agency will seek to have the asset freeze and the order not to destroy documents kept in place throughout the litigation.
She added that the commission brought the case against Calugar within 72 hours of learning about the $50 million transfer.
Calugar’s attorney wasn’t immediately available to comment.
