SEC Slaps Zurich Capital With $16 Million Market-Timing Fine

May 7 2007 | 11:21am ET

The Securities and Exchange Commission has settled an administrative proceeding against Zurich Capital Markets for its role in financing hedge funds engaged in mutual fund market-timing.

According to the regulator, ZCM aided and abetted four hedge funds involved in illicit mutual fund trading by creating seemingly unaffiliated special-purpose vehicles, opening multiple brokerage accounts allowing the hedge funds to disguise their identities. ZCM allegedly profited from the fees it received for providing derivative financing to their hedge fund clients.

"By knowingly financing their hedge funds clients' deceptive market timing, ZCM reaped substantial fees at the expense of long-term mutual fund shareholder,” Mark Schonfeld, director of the SEC’s New York office, said. “Because of ZCM's attractive financing arrangement and its willingness to create a number of anonymous special purpose vehicles for its hedge fund clients, the hedge funds were able to inflate their trading profits from their deceptive conduct."

Zurich Capital was ordered to pay $12.8 million in disgorgement and prejudgment interest and a $4 million penalty. The firm, which is currently winding down its operations, consented to the order without admitting or denying the Commission's findings. The money will be distributed to the mutual funds that fell victims to the market-timing scheme.


In Depth

Debunking Conventional Investment Wisdom

Feb 8 2017 | 3:22pm ET

Due diligence in the hedge fund world has long involved some combination of the...

Lifestyle

'Tis the Season: Wall Street Holiday Parties Back In Fashion

Dec 22 2016 | 9:23pm ET

Spending on Wall Street holiday parties has largely returned to pre-2008 levels...

Guest Contributor

The Future of Private Equity: New Opportunities, New Challenges

Feb 3 2017 | 6:41pm ET

The private equity industry’s astonishing rebound since the financial crisis has...

 

From the current issue of