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"Late Trading" In Mutual Funds - Still In SEC Crosshairs

Think twice before before placing an order to buy, sell or redeem mutual fund shares after the markets close to receive that day's price. This well-known practice, called "late trading," caught and continues to hold regulator attention, and carries with it significant negative repercussions.

Yesterday, Michael Carl Hoffman entered an offer of settlement in an administrative action brought by the SEC. In a nutshell, the SEC alleged that Hoffman, who co-managed the hedge fund Ilytat, learned about and exploited a "loophole" in a clearing broker's mutual fund order entry system to place approximately 2,700 late trades in various mutual funds thereby allowing Ilytat to receive beneficial prices after the market closed.  A copy of the consent order can be found at sec.gov/litigation/admin/2007/ia-2638.pdf

With out admitting or denying the allegations, Hoffman agreed to cease and desist from committing any further violations and was barred from associating with any investment advisor for a period of 18 months with an opportunity to reapply for association after this period expired. Hoffman was also prohibited from serving, acting or affiliating in any material capacity with a registered investment company or like entity for 18 months, and ordered to pay a civil penalty of $100,000.

Full post as published by OverRegd - Securities Regulation and Litigation Blog on August 23, 2007 (boomark / email).