Week in Review
October 1, 2007
Ex-Brean Murray EVPs Charged with Late Trading
The Securities and Exchange Commission has charged two former executive vice presidents with Brean Murray with placing late trades for a number of clients, including Canary Capital.
Without admitting or denying the SEC's findings, Ryan D. Goldberg and Michael H. Grady consented to the sanctions and cease-and-desist order imposed by the SEC.
The Commission said that between August 2001 and September 2003, Goldberg and Grady placed $1.8 billion in late trades and market timing for Canary and at least four other hedge funds with more than 20 mutual fund complexes, using Bear Stearns as the clearing broker. The scheme earned the two more than $2.1 million in fees.
The SEC also said that the two registered representatives also actively marketed their late trading services to hedge funds to try to win their business.
The SEC had fined both Goldberg and Grady $2.5 million in disgorgement and interest. However, based on the respondents' sworn testimony about their financial conditions, the SEC has waived the entire amount for Goldberg and is charging Grady only $25,000.
The two are barred from working in the industry for three years.
Cease and Desist Against Pritchard for Late Trading
The Securities and Exchange Commission has issued a cease and desist against brokerage Pritchard Capital and three of its executives for allegedly having allowed some of its mutual fund customers to late trade mutual funds between 2001 and 2003. The three named in the suit are Thomas W. Pritchard, managing director of Pritchard Capital, and former executives Joseph J. Van Book and Elizabeth A. McMahon.
The SEC maintains that Pritchard failed to document the timing of its customers' final confirmations of trades and didn't have policies or procedures in place to detect or prevent late trading, and that Thomas Pritchard failed to supervise Van Book and McMahon.
The SEC will hold a hearing on the matter before an administrative law judge.
Evergreen Settles Market-Timing Charges for $32.5M
Evergreen Investments, a unit of Wachovia, settled market-timing charges with the Securities and Exchange Commission for $32.5 million, and former Evergreen Senior Vice President William Ennis also agreed to pay $150,000 to settle related charges.
In January 2000, the SEC said, Ennis permitted a registered rep at Wachovia Securities to market time a few of the Evergreen funds. In the Evergreen Small Company Growth Fund, for instance, the registered rep made 386 exchanges into and out of the fund between January 2001 and March 2003.
Evergreen Chief Executive Officer Dennis Ferro posted a letter on the company's website saying that most of the improper trading took place before 2000, at which time the company improved controls to prevent market timing.
Wealthy Give Dodge & Cox, Blackrock Top Billing
A survey on perceptions of mutual funds by the Luxury Institute, a research organization that caters to the high-net-worth and the companies that serve them, found that Dodge & Cox, Blackrock and Columbia are considered the most prestigious fund families out of a listing of 23 firms.
The survey, conducted online among 1,500 people with an average net worth of $3.4 million and an average income of $329,000, found that the wealthy consider the investment products from Dodge & Cox to be consistently superior in all market conditions and that the firm is especially admired by penta-millionaires.
Many high-net-worth individuals achieved their wealth through their own achievements and are very selective about which firms they invest with, said Milton Pedraza, chief executive officer of the Luxury Institute. "It is amazing how well informed they are about scandal, conflict of interest and lack of transparency, and they rate brands accordingly," Pedraza said. "In these times of market volatility, high-net-worth investors look for trustworthy performers who help them mitigate the downturns and make them prosper in the long term."
Pyramis Hopes to Attract $20B to Long-Short Funds
Pyramis, the institutional arm of Fidelity, is incubating 13 long-short funds and plans to launch four of them before the end of this year, Reuters reports. Over the next five years, Pyramis expects to attract $20 billion to long-short funds.
Pyramis recently launched another alternative investment, a 130/30 fund.
The launch comes at a time when institutional investors are increasingly looking to alternative investments, including hedge funds.
"Over the next five years, we wouldn't be surprised if we build a $20 billion business in long-short strategies," said Young Chin, Pyramis chief investment officer. Pyramis currently manages $158 billion in assets.
"We think that strategies involving shorting are slowly becoming mainstream. So, our strategy here at Pyramis is to build a large platform to complement our long-only strategies, with the view that long-short strategies will have growing interest in the institutional market."
401(k) Expense Ratios Fall To 74 Basis Points: ICI
The asset-weighted expense ratios for mutual funds fell to 74 basis points in 2006, down from 76 basis points the year before, according to the Investment Company Institute. That's far lower than the average 1.5% that all stock funds charge.