LOS ANGELES (AP) The U.S. Securities and Exchange Commission
on Wednesday charged a Beverly Hills brokerage with fraud for
allegedly engaging in trading practices that harmed mutual fund
investors.
National Clearing Corp., and its parent company, JB Oxford
Holdings, were named in the complaint. Charges also were filed
against James G. Lewis, 39, former president and chief operating
officer of the parent company; Kraig L. Kibble, 44, who is NCC's
director of operations; and James Y. Lin, 46, who is NCC's vice
president of correspondent services.
Matthew Dontzin, an attorney for Lewis, said he had not seen the
complaint, but believed it had no merit.
``I think this is a significant reach by the SEC,'' he said.
The commission's complaint was filed in U.S. District Court in
Los Angeles.
It alleges that the defendants facilitated thousands of late
trades in more than 600 different mutual funds on behalf of
selected institutional customers. ``Late trading'' refers to orders
placed to buy or sell mutual fund shares after 4 p.m. Eastern time.
The practice allows traders to profit from market events that occur
after 4 p.m., but that are not reflected in that day's price.
The SEC alleged that National Clearing Corp. engaged in market
timing of trades to exploit inefficiencies in mutual fund pricing.
Such action can harm mutual fund shareholders because it can dilute
the value of their shares.
``When clearing firms illegally permit their customers to trade
mutual funds using special access to after-hours trading and
conceal their customers' market timing activities from mutual funds
by developing deceptive tactics to continue the impermissible
trading, they violate the federal securities laws and will be
prosecuted,'' said Randall R. Lee, director of the SEC's Pacific
Regional Office in Los Angeles.
The complaint alleged that NCC had written agreements with
institutional customers who engaged in late trading and market
timing. The agreements included a 1 percent custodial fee in
exchange for handling market timing and late trading in mutual
funds.
The SEC is seeking an order that permanently bans the defendants
from engaging in the allegedly illegal practices.
(Copyright 2004 by The Associated Press. All Rights Reserved.)