Pentagon Penalty Rises To $98 Million

Apr 3 2012 | 2:17am ET

Pentagon Capital Management's bill for allegedly late-trading mutual funds has grown by more than $20 million.

A federal judge last week entered a final judgment against the defunct hedge fund and its founder, Lewis Chester. In addition to the $76.7 million in disgorgement and civil penalties U.S. District Judge Robert Sweet imposed in February, the defendants were ordered to cough up a further $21.8 million in prejudgment interest.

Chester and Pentagon have vowed to appeal the judgment.

Chester shut Pentagon down four years ago as the Securities and Exchange Commission prepared to bring its suit. The regulator sued the hedge fund a week later anyway, accusing the once US$2.2 billion firm of defrauding mutual funds from June 1999 through September 2003.

In February, Sweet sided with the SEC in the case, ruling that Pentagon and Chester "intentionally, and egregiously, violated the federal securities laws through a scheme of late trading."

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