Week in Review
April 2, 2007
Beacon Rock Settles Timing Case for $475K
Hedge fund Beacon Rock Capital has agreed to pay $475,000 to settle charges that it market timed mutual funds between 1999 and 2003. It is the first criminal case against a hedge fund for market timing.
According to the U.S. attorney's office, Beacon Rock and Thomas Gerbasio, an executive at a Philadelphia broker/dealer, set up more than 30 accounts to engage in market timing, earning a profit of $2.4 million for Beacon Rock and $215,000 for Gerbasio.
Hedge Fund Sues Mass. for Web Posting Restrictions
Philip Goldstein, one of the principals of hedge fund Bulldog Investors, succeeded last year in overturning the hedge fund registration rule. He also is challenging a Securities and Exchange Commission rule that would require hedge funds to disclose their holdings every quarter, citing theft of intellectual property.
Now Goldstein is taking on Massachusetts securities regulators, The Wall Street Journal reports.
Goldstein has sued the state, charging it with infringing on his First Amendment free speech rights. The suit seeks an injunction against Massachusetts.
In January, the state said Goldstein improperly solicited inquiries about his hedge fund on his website; unregistered hedge funds are not allowed to solicit customers by offering their investment opportunities to the public.
Goldstein called the advertising restrictions "silly" since regulations allow only accredited investors to place their money in hedge funds.
Veras to Return $38M To 810 Mutual Funds
The Securities and Exchange Commission has gotten the Veras hedge funds to agree to return $38 million to 810 mutual funds that they market timed.
Under the Sarbanes-Oxley Act, the SEC can include civil penalties along with disgorgement in fair fund distributions.
To date, the SEC has distributed more than $1 billion in fair funds.
"Today's distribution marks another significant step in the Commission's vigorous program to return money to investors injured by mutual fund trading abuses," said Linda Chatman Thomsen, director of the division of enforcement.
The SEC first brought its charges against the funds and two of their principals in December 2005. They were: Veras Capital Master Fund, VEY Partners Master Fund, Veras Investment Partners, Kevin D. Larson and James R. McBride.
Although the respondents settled the order without admitting to or denying the wrongdoings, the SEC said that between January 2002 and September 2003, the hedge funds market timed and late traded the mutual funds.
Fidelity Nearing Settlement With SEC Over Gift Probe
The Securities and Exchange Commission has begun talks with Fidelity Investments into the inquiry whether the acceptance of lavish gifts by traders harmed shareholders, according to The New York Times.
In December, Fidelity paid $42 million to its mutual funds following an internal investigation into the matter by the funds' trustees. The probe found that Fidelity failed to oversee traders who accepted expensive travel and entertainment gifts from brokers seeking to handle stock trades on Fidelity's behalf. However, the firm said it could not determine whether acceptance of the gifts affected fund costs or performance. Thus, Fidelity said, it cannot be demonstrated that any Fidelity fund or shareholder suffered financial harm as a result of accepting the gifts. The company has taken the same stance in the settlement talks, attorneys said.
The SEC has indicated it is still focused on the question of harm, financial or otherwise. Attorneys, speaking on condition of anonymity because the investigation is ongoing, said a key issue in the settlement talks is whether the SEC will succeed in its debate that the gift giving harmed shareholders.
Anne Crowley, a Fidelity spokeswoman, said the company would not comment on its discussions with regulators.
Australia's Fund Assets Have Doubled Since 2003
With assets more than doubling in mutual funds in Australia since 2003, asset management firms around the world are looking to enter or expand in the market, Bloomberg reports.
Previously, investment managers overlooked the country, with a population of a mere 20 million people. But since Australia began requiring employers to save 3% of workers' salaries in 1992 and 9% beginning in 2002, workers in the country now have an average of $38,802 invested in mutual funds. Assets now hover at $763 billion, up from $356 billion in 2003, according to the Investment Company Institute.
And they are expected to rise considerably this year due to the elimination of a 15% tax on lump-sum payouts for people age 60 or over.
"All that money simply cannot be invested in Australia," said Alan McFarlane, managing director of Walter Scott & Partners in Scotland, which manages $3 billion of Australian's money. "That makes Australia one of the most attractive markets on this planet for global equity mandates."
Legg Mason Opening Offices Throughout Asia
With an eye to gaining a foothold in China, Legg Mason is opening offices in Hong Kong, Taiwan and Singapore, Reuters reports.