LOS ANGELES (AP) The U.S. Securities and Exchange Commission on Wednesday charged a Beverly Hills brokerage with fraud for allegedly engaging in trading practices that harmed mutual fund investors.
National Clearing Corp., and its parent company, JB Oxford Holdings, were named in the complaint. Charges also were filed against James G. Lewis, 39, former president and chief operating officer of the parent company; Kraig L. Kibble, 44, who is NCC's director of operations; and James Y. Lin, 46, who is NCC's vice president of correspondent services.
Matthew Dontzin, an attorney for Lewis, said he had not seen the complaint, but believed it had no merit.
``I think this is a significant reach by the SEC,'' he said.
The commission's complaint was filed in U.S. District Court in Los Angeles.
It alleges that the defendants facilitated thousands of late trades in more than 600 different mutual funds on behalf of selected institutional customers. ``Late trading'' refers to orders placed to buy or sell mutual fund shares after 4 p.m. Eastern time. The practice allows traders to profit from market events that occur after 4 p.m., but that are not reflected in that day's price.
The SEC alleged that National Clearing Corp. engaged in market timing of trades to exploit inefficiencies in mutual fund pricing. Such action can harm mutual fund shareholders because it can dilute the value of their shares.
``When clearing firms illegally permit their customers to trade mutual funds using special access to after-hours trading and conceal their customers' market timing activities from mutual funds by developing deceptive tactics to continue the impermissible trading, they violate the federal securities laws and will be prosecuted,'' said Randall R. Lee, director of the SEC's Pacific Regional Office in Los Angeles.
The complaint alleged that NCC had written agreements with institutional customers who engaged in late trading and market timing. The agreements included a 1 percent custodial fee in exchange for handling market timing and late trading in mutual funds.
The SEC is seeking an order that permanently bans the defendants from engaging in the allegedly illegal practices.
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