The mutual fund late-trading and market-timing scandal rocked Wall Street four years ago, but the U.S. Securities and Exchange Commission—a latecomer to the issue then—continues to find wrongdoing on the part of hedge funds from the period.
For the second time this week, the SEC has filed suit against a British hedge fund, accusing Headstart Advisers of defrauding U.S. mutual funds from 1998 through 2003. The complaint, which targets both the firm and its investment advisers, Najy Nasser, accuses the firm of using misleading practices—including using a variety of unrelated and fancifully-named entities—in its allegedly illicit and improper trading.
Headstart “employed a number of deceptive tactics, including using multiple accounts… to help conceal Headstart Fund’s identity and thereby trick the U.S. mutual funds into accepting Headstart Fund’s trades,” the suit, filed in Manhattan federal court, alleges.
The SEC wants Headstart to return $198 million in allegedly ill-gotten gains from the trading, which took place on behalf of a now-defunct hedge fund.
Headstart dismissed the charges as “utterly misguided.”
“The [British Financial Services Authority] was satisfied, as Headstart is, that there was nothing improper of irregular in the actions now complained of,” the firm said in a statement, promising to “vigorously defend” itself against the SEC suit.
The SEC complaint includes a firm document allegedly instructing employees to use “Shakespeare, TV shows or comics” to name new accounts and trading subsidiaries to fool the mutual fund companies, as they are “an untapped pool of names.”
“The Classics have been done to death,” the document reportedly said.
The regulator also cited a July 2003 effort by the hedge fund to allegedly cancel a mutual fund trade after the 4 p.m. deadline.
Earlier this week, the SEC filed similar charges against Pentagon Capital Management, which has also promised to fight the suit against them.