Nov. 5–A local company has become entangled in the growing scandal over illegal mutual-fund trading.

Kaplan & Co. Securities Inc. in Boca Raton has not been charged, but has received a subpoena from the authorities for information involving allegations against other financial firms for so-called “late trading” and “timed trading.”

Kaplan officials have been cooperating with authorities. The U.S. Securities and Exchange Commission and New York Attorney General Eliot Spitzer’s office, who are investigating the fund industry, declined comment Tuesday on the ongoing probe.

“I feel my firm has always acted within the letter of the law,” Kaplan founder and Chief Executive Officer Jed Kaplan said Tuesday.

The mutual fund scandal came to light in September when Spitzer filed a civil complaint, alleging that hedge fund Canary Capital Partners in New Jersey and its principal, Edward Stern, engaged in illegal fund trading for more than three years.

Ultimately, Canary settled the lawsuit with Spitzer, paying $40 million in fines and restitution and avoided admitting any wrongdoing.

Orders to buy and sell mutual fund shares end at 4 p.m. Those placed after that are priced using the following day’s price. Canary made deals with several firms, starting in 2000 with Kaplan & Co., to receive the 4 p.m. price on orders illegally placed after that time, Spitzer said in the civil suit.

In late trading, Canary could then buy or sell the fund when the market opens the next day, taking advantage of news after the market closes, the suit alleges. Profits on late trading come out of the pockets of other mutual fund investors who typically hold their shares long-term.

Spitzer compared the action to “betting today on yesterday’s horse race.”

Since Spitzer sued Canary, the SEC has started its own investigation, filing suit against a trader with Bank of America Securities, which allegedly allowed Canary’s late-trading.

And this week the widening mutual fund scandal has forced the ouster of Putnam Investments Chief Executive Officer Lawrence Lasser after two Putnam portfolio managers were accused of excessive short-term trading. And Richard Strong, founder of Strong Capital Management, has resigned as chairman of Strong Mutual Funds group, although he remains chairman and CEO of the parent firm, after that company was implicated in the Canary probe.

In broadening its probe, the SEC has asked for detailed information from 88 large mutual funds and 34 broker-dealers on their trading activities.

The latest casualty is Prudential Securities Inc. On Tuesday, state and federal regulators filed civil charges against former brokers and branch managers at Prudential’s Boston office, alleging they used false identities to make timed trades for themselves. With the Senate Subcommittee on Financial Management holding hearings on the scandal and Spitzer and the SEC continuing their probes, more sanctions of the mutual-fund industry are likely.

“They have utterly betrayed the American public,” Spitzer said.

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