Two executives of a Florida-based investment company pleaded guilty to state criminal charges in connection with the ongoing investigation of illegal trading practices in the mutual fund industry, New York Attorney General Eliot Spitzer said Tuesday.
In a related development, the Securities & Exchange Commission announced a $750,000 civil settlement against the brokers.
According to the attorney general’s criminal charges and the SEC findings, the two men engaged in illegal late trading of mutual funds on behalf of Kaplan and specific hedge fund clients,
Delano Sta. Ana, 29, and Lawrence Powell, 40 pleaded guilty to felony securities fraud under New York’s Martin Act, which is punishable by a maximum term of one to four years in state prison.
According to the charges, the brokers placed mutual fund orders after 4 pm EST, but obtained prices that had been set as of 4 pm. This allowed Kaplan customers to capitalize on news events and market changes occurring after the close of the stock market.
Kaplan is a privately held financial services firm based in Boca Raton, Florida. One of its clients was the hedge fund, Canary Capital Partners.
Since Spitzer announced a settlement relating to illegal trading practices with Canary in September 2003.
The ongoing investigation into the mutual funds industry has resulted in settlements that will provide $1.17 billion in restitution to investors, $821 million in civil penalties, and $925 million in anticipated reductions in mutual fund fees over five years, totaling over $2.9 billion in value. The investigation is continuing.
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