Texas Hedge Funds Settle Improper Trading Investigation
Attorney General Spitzer today announced an agreement with two related Texas hedge funds and their managers to resolve an investigation of improper trading of mutual funds.
The settlement with the two funds - - Veras Capital Master Fund (Veras) and VEY Partners Master Funds (VEY), based in Sugar Land, Texas - - was reached in conjunction with the Securities and Exchange Commission and announced simultaneously today by both agencies. In addition, the Commodities Futures Trading Commission today announced its settlement of a related action.
"Veras and VEY Partners and the two fund managers engaged in illegal late trading and market timing activities at the expense of mutual fund investors," Spitzer said. "This settlement will compensate investors for the losses they suffered, and imposes fines and suspensions on the hedge fund executives who were responsible."
Under the settlement agreement, Veras and VEY will pay $36,200,488 in disgorgement, restitution and pre-judgment interest to investors and Kevin D. Larson and James R. McBride, the funds’ managers, will each pay civil penalties of $750,000 that will be distributed to investors. Larson and McBride will also be barred from working for any investment advisor or registered investment company for a period of no less than 18 months.
Spitzer’s investigation revealed that during 2002 and 2003, Veras and VEY engaged in late trading of mutual funds, purchasing and selling mutual fund shares after the 4 p.m. close of the markets. Using a computer model that incorporated post-4 p.m. futures prices, Veras and VEY were able to purchase and sell mutual funds at pre-close prices based on post-close information.
Veras and VEY also engaged in extensive market timing of mutual funds that specifically prohibited or limited market timing. To accomplish this, the hedge funds used deceptive techniques that hid their identity and otherwise evaded protective measures put in place by the mutual funds to prevent unwanted timing.
The settlement of the Veras and VEY investigation brings to 18 the total number of mutual funds and hedge funds that have settled investigations with the Attorney General’s Office since it began its probe of improper trading activity in July 2003. To date, these settlements have resulted in over $3.3 billion being returned to investors. The investigation into improper trading of mutual funds continues.
The Veras and VEY investigation was conducted by Assistant Attorney General Roger Waldman of the Investment Protection Bureau under the supervision of Bureau Chief David Brown.