Close Close
Popular Financial Topics Discover relevant content from across the suite of ALM legal publications From the Industry More content from ThinkAdvisor and select sponsors Investment Advisor Issue Gallery Read digital editions of Investment Advisor Magazine Tax Facts Get clear, current, and reliable answers to pressing tax questions
Luminaries Awards

Regulation and Compliance > Federal Regulation > SEC

SEC Charges Texas Broker With Fund Trading Fraud

Your article was successfully shared with the contacts you provided.

Dec. 4, 2003 — The Securities and Exchange Commission today sued, a Dallas investment adviser, and three of its executives and two affiliates, charging that they fraudulently helped investors improperly trade shares of mutual funds.

The SEC alleges that the defendants helped institutional and other clients make and conceal thousands of market timing and illegal late trades in hundreds of funds.

The suit, filed in federal court in Texas, names as defendants Richard Sapio, the chief executive of; Eric McDonald, its president; and Michele Leftwich, its compliance officer. Also named are two affiliated broker dealers, Connely Dowd Management Inc. and MTT Fundcorp Inc.

The SEC alleges that, starting in July 2001, hundreds of mutual fund companies and two clearing firms admonished that it’s clients market timing activities were improper, and by last September 294 companies had prohibited or otherwise banned from trading in their shares.

In response, the SEC said, the three executives devised ways to conceal their clients’ market timing activities.

The regulatory agency also charges that this year and its affiliates routinely allowed customers to buy fund shares at the 4 p.m. closing price after the market’s close. The firms allegedly tried to cover up this so-called late trading by not reporting some information they were required to provide to clearing agents.

The SEC said it uncovered the alleged misconduct during an examination of the complex in October. In addition to offering mutual funds under its own name, offers the Vice Fund (VICEX), which invests in alcohol, tobacco, gaming and weapons companies.

At the request of the SEC, the defendants have agreed to the appointment of a monitor who will oversee the defendants’ businesses, including’s mutual funds, pending the outcome of the suit. The SEC is seeking monetary penalties, and the return of illegally made profits.

The executives and the company’s attorney could not immediately be reached for comment.

Market timing involves rapidly buying and selling fund shares to take advantage of inefficiencies in fund pricing. While not illegal, the practice can hurt long-term investors.

Late trading involves buying or sell fund shares after the market closes at 4 p.m., but at the price set at closing. The practice enables traders to potentially profit from news that breaks after the close.


© 2024 ALM Global, LLC, All Rights Reserved. Request academic re-use from All other uses, submit a request to [email protected]. For more information visit Asset & Logo Licensing.