An ex-CFO of a formerly registered broker-dealer who had been slapped by the Securities and Exchange Commission with civil charges linked to late trading in mutual funds has settled with the SEC.
The commission alleged that between January 2001 and September 2003, Trautman Wasserman & Co. accepted thousands of orders from its hedge-fund customers to trade mutual funds after the stock market’s 4 PM close but executed the trades as though they’d been received before that time.
Mark Barbera, who had been TWCO’s CFO since 1993, was accused of approving the use of TWCO assets to trade mutual funds through a proprietary account. The account allegedly traded on the basis of news and market conditions after the market close, although those trades were priced at that day’s net asset value. “The CEO of TWCO generally placed the trades in the proprietary account, and Barbera monitored the TWCO proprietary account for net capital purposes,” the SEC added.
The illegal conduct generated significant revenues for TWCO and harmed mutual-fund investors by diluting the value of their investments, the commission asserted. Market timing can also disrupt the management of the mutual fund’s investment portfolio and cause other shareholders to pay for frequent trading by the market timer, according to the SEC.
The complaint also alleged that Barbera sought capacity that could be used for mutual-fund trading. Further, he was present for parts of various discussions between TWCO partners and officers in which the practice of submitting trades after 4 PM was discussed, according to the SEC.
Without admitting or denying the allegations, Barbera consented to pay a civil penalty of $60,000. Among other prohibitions, he was barred from associating with any broker or dealer and from working for an investment company for six months.