U.S. hedge fund adviser charged $40 million for late trading scheme: SEC

Date: Wednesday, February 6, 2008
Author: James Langton, Investment Executive

Ritchie Multi-Strategy Global Trading Ltd. and two executives were charged.

A Chicago-area hedge fund adviser has agreed to pay $40 million in a settlement concerning an alleged late trading scheme.

The US Securities and Exchange Commission (SEC) and the New York state attorney general announced that they settled an enforcement action against a hedge fund, its investment adviser, its founder and CEO, and two employees for their roles in an illegal late trading scheme.

The SEC charged hedge fund, Ritchie Multi-Strategy Global Trading Ltd., and its Chicago-based adviser, Ritchie Capital Management LLC, as well as two executives. They will pay a combined total of approximately $40 million to settle the SEC’s charges. These payments will be distributed to the affected mutual funds.

The commission’s order finds that from January 2001 through September 2003, Ritchie Capital engaged in an illegal late trading scheme. It says the firm placed thousands of late trades in mutual fund shares and used post-4 p.m. ET news and market information to make its mutual fund trading decisions while receiving the same day’s net asset value for the mutual funds traded. The late trading resulted in a profit of approximately $30 million to the fund, the SEC found.

The SEC order requires the defendants to pay disgorgement of $30 million, and prejudgment interest of approximately $7.4 million. They will also pay civil penalties totaling $2.75 million. They all consented to the order without admitting or denying the findings.

“This action demonstrates the commission’s willingness to take strong action against hedge fund advisers and their employees when they violate the federal securities laws. Here, respondents did so by engaging in illegal late trading in mutual funds,” said Linda Chatman Thomsen, Director of the SEC’s Division of Enforcement.