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

bfinance: Fees Falling Across Asset Classes, Yet Overall Investor Costs Still Climbing

May 16 2017 | 9:53pm ET

Despite unprecedented attention on fees, new research from investment consultancy...

Lifestyle

CFA Institute To Add Computer Science To Exam Curriculum

May 24 2017 | 9:25pm ET

Starting in 2019, financial industry executives sitting for the coveted Chartered...

Guest Contributor

Risk-Based Compliance: Why Oversight Of Outsourcing Is Critical

May 10 2017 | 7:02pm ET

Compliance is notoriously one of the trickiest middle office functions for funds...

 

From the current issue of