Southwest, Kaplan Brokers Reach Timing Settlements
January 17, 2005
Two brokerage firms reached settlements in market-timing and late-trading charges last week. Dallas broker/dealer Southwest Securities agreed last Monday to pay $10 million for allegedly failing to prevent its registered reps from submitting market-timing and late-trading mutual fund trades. Three managers and two brokers were also named in the suit, which the New York Stock Exchange and the Securities and Exchange Commission filed jointly.
The three managers have been banned from acting as supervisors at any broker/dealer or investment advisor for a year. The firm's former president and CEO, Daniel R. Leland, is paying $1 million in disgorgement and a civil penalty of $200,000. Kerry M. Rigdon, formerly SVP and director of the private client group, is paying $1 in disgorgement and a civil penalty of $50,000. The third manager, Kevin J. Marsh, a former VP and branch manager of the downtown Dallas office, is also paying $1 in disgorgement along with a civil penalty of $25,000. The two brokers named in the case are Scott B. Gann and George B. Fasciano.
The suit charges that the Southwest executives sought to trick more than 30 of their mutual fund partners into accepting the trades by grouping multiple customer accounts and even broker identification and branch office numbers together. In settling the action, however, the firm and its executives neither admitted to nor denied the charges.
Separately, the SEC reached a similar settlement last Tuesday with two brokers at the Boca Raton, Fla.-based brokerage firm Kaplan & Co. Securities for engineering a scheme that facilitated market timing and late trading at the cost of long-term mutual fund shareholders. Lawrence S. Powell and Delano Sta. Ana, former registered reps with the firm, did not admit or deny the findings. They were ordered to pay a total of $750,000, split evenly, after the SEC found that they employed multiple branch codes and clearing firms to hide from mutual funds the identities of customers making rapid trades.
The regulators also accused the two of "next-day bust orders," whereby they instructed clearing firms to cancel trades the next morning if they didn't result in profits to a client.