Friday, 27 February 2015
Last updated 5 hours ago
Jun 11 2008 | 12:44pm ET
A trio of former Merrill Lynch brokers have been barred by the New York Stock Exchange for helping a hedge fund deceptively market-time mutual funds.
Kevin Brunnock, Christopher Chung and William Savino each consented, without admitting or denying the charges, to a censure and permanent bar. The so-called “CBS Group” received more than 150 stop notices from mutual funds attempting to end the practice, but they used a variety of deceptive practices to keep it going for three years, even after their bosses ordered them to stop.
According to the NYSE, from October 2000 until October 2003—first at UBS and, after January 2002, at Merrill Lynch—the three facilitated more than 25,000 short-term mutual fund trades for hedge fund Millennium Partners, using dozens of accounts and other deceptive measures to evade mutual fund market-timing restrictions.
At UBS, “the CBS Group facilitated Millennium’s short-term trading by disguising Millennium’s trades through the use of 35 Millennium accounts, more than 20 annuity contracts, two branch codes, six different FA and FA split numbers,” NYSE said.
“Even after Merrill Lynch instructed the CBS group to cease market-timing, the CBS Group entered into a sticky asset arrangement with a fund representative which permitted the CBS Group to conduct frequent trading in the fund in exchange for the CBS Group’s placement of a long-term or sticky asset investment of $1 million.”
UBS was fined $49.5 million by the NYSE and New Jersey Bureau of Securities for failing to stop the Brunnock, Chung and Savino, while Merrill was fined $13.5 million by the NYSE. New Jersey also revoked the trio’s licenses in March 2005.
Millennium Partners was one of the first and most high-profile subjects of then-New York Attorney General Eliot Spitzer’s investigation of improper mutual fund market-timing and late-trading. The firm and its executives agreed in 2005 to pay $180 million to settle the probe.
Jan 23 2015 | 1:00pm ET
In our new section, FINtech Focus, we will profile one of these firms each week. While fintech is a broad category, we will be focusing on firms that specifically cater to the alternative investment industry. Read more…