You don’t hear much about the great mutual fund rip-off these days. Maybe it’s all the record Dow closes. Maybe all the big cases seem to have been settled. Justice was doled out, and all that good stuff. Swiss insurance giant Zurich Financial just paid a not-so-whopping $16.8 million to settle up with the SEC.
Zurich Capital Markets, a U.S. subsidiary, helped four hedge funds disguise their identities to avoid detection when making frequent trades in mutual-fund shares, a practice called market timing, the SEC said in statement today.
By knowingly financing their hedge funds clients' deceptive market timing, ZCM reaped substantial fees at the expense of long-term mutual-fund shareholders,' Mark Schonfeld, director of the SEC's regional office in New York, said in the statement."
As a refresher, the fund timing scandal involved crooked banks and brokers working with crooked hedge funds and other institutional investors to systematically skim ordinary fund shareholders out.
Frequent trading in and out of mutual funds can allow the smart trader – or timer – near risk free profits by effectively taking advantage of pricing anomalies at mutual funds. One scheme involved trading funds that invest overseas, arbitraging the stale prices resulting from time zone issues. Another favorite allowed trading after hours in funds that would move the next day on big news released after the market closed.
As would be expected, such money moves increased ordinary fund investor’s exposure to downside, but decreased their exposure to upside. This in addition to increasing costs incurred by the fund (and therefore the shareholders) handling all the fast money flows.
While such fraud lacks the flash of absconding with an entire account, stealing small amounts from millions of people should be punished just as severely as stealing large amounts from a small amount of people. Apparently the SEC sees things a little differently.
The settlement includes a $4 million fine and forfeiture of $12.8 million in profits. The money will be distributed to mutual-fund investors harmed by the trading, the SEC said."
Keep in mind Zurich probably made $4 million investing that $12.8 million in illicit profits. The SEC can chalk up another "success" and the global financial industrial complex can rest assured that, as Bob Dylan once said, "Steel a little and they throw you in jail, steel a lot and they make you king."
O.K. maybe replace king with "give the money back"...
You don’t hear much about the great mutual fund rip-off these days. Maybe it’s all the record Dow closes. Maybe all the big cases seem to have been settled. Justice was doled out, and all that good stuff. Swiss insurance giant Zurich Financial just paid a not-so-whopping $16.8 million to settle up with the SEC.
Zurich Capital Markets, a U.S. subsidiary, helped four hedge funds disguise their identities to avoid detection when making frequent trades in mutual-fund shares, a practice called market timing, the SEC said in statement today.
By knowingly financing their hedge funds clients' deceptive market timing, ZCM reaped substantial fees at the expense of long-term mutual-fund shareholders,' Mark Schonfeld, director of the SEC's regional office in New York, said in the statement."
As a refresher, the fund timing scandal involved crooked banks and brokers working with crooked hedge funds and other institutional investors to systematically skim ordinary fund shareholders out.
Frequent trading in and out of mutual funds can allow the smart trader – or timer – near risk free profits by effectively taking advantage of pricing anomalies at mutual funds. One scheme involved trading funds that invest overseas, arbitraging the stale prices resulting from time zone issues. Another favorite allowed trading after hours in funds that would move the next day on big news released after the market closed.
As would be expected, such money moves increased ordinary fund investor’s exposure to downside, but decreased their exposure to upside. This in addition to increasing costs incurred by the fund (and therefore the shareholders) handling all the fast money flows.
While such fraud lacks the flash of absconding with an entire account, stealing small amounts from millions of people should be punished just as severely as stealing large amounts from a small amount of people. Apparently the SEC sees things a little differently.
The settlement includes a $4 million fine and forfeiture of $12.8 million in profits. The money will be distributed to mutual-fund investors harmed by the trading, the SEC said."
Keep in mind Zurich probably made $4 million investing that $12.8 million in illicit profits. The SEC can chalk up another "success" and the global financial industrial complex can rest assured that, as Bob Dylan once said, "Steel a little and they throw you in jail, steel a lot and they make you king."
O.K. maybe replace king with "give the money back"...
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