Former Trader Pleads Guilty In Mutual Fund Case
State Attorney General Spitzer today announced the arrest and conviction of the former head trader and owner of Securities Brokerage, Inc. (SBI), a broker-dealer formerly based in Las Vegas, who engaged in market timing.
Daniel Calugar, 52, of Ponte Vedra, Florida, pleaded guilty today before the Hon. James Yates in Manhattan State Supreme Court to a felony violation of New York's Martin Act. Calugar is charged with entering into a secret agreement in August 2001 that defrauded the Franklin Small-Mid Cap Growth Fund.
Calugar secretly agreed with an employee of Franklin's investment adviser the he would be permitted to rapidly trade in the fund without paying the mandated two-percent penalty fee. In exchange for this, Calugar invested $10 million in a separate Franklin-run hedge fund. As a result of this agreement, Calugar defrauded the mutual fund and its shareholders of more than $1 million in fees that he should have paid and was able to market-time the mutual fund freely, also to the detriment of the fund's shareholders.
The Martin Act conviction, a class "E" felony, satisfied alleged criminal conduct relating to other instances of market timing and late trading. Calugar faces up to four years in prison, the maximum sentence allowable under the law. He has already agreed to pay $150 million in restitution to the U.S. Securities and Exchange Commission.
Calugar was released on his own recognizance and is scheduled to be sentenced by Judge Yates on March 23.
Since September 2003, when Attorney General Spitzer announced a settlement relating to illegal trading by the hedge fund Canary Capital Partners, through today, the office's continuing investigation into the mutual funds industry has resulted in10 guilty pleas and agreements that will provide $1.5 billion in restitution to investors, $966 million in civil penalties, and $945 million in anticipated reductions in mutual fund fees, totaling over $3 billion in value.
The case is being prosecuted by Assistant Attorneys General Ricardo Velez and Harold Wilson, under the direction of Criminal Division Chief Peter Pope and Criminal Prosecutions Bureau Chief Janet Cohn. Investigators Herbert Antomez and Milton Branch assisted in the investigation of the case under the supervision of Henry Lemons, Deputy Chief of the Investigations Bureau of the Attorney General's Office.