Hedge fund settles with NY, SEC for $40M in trading case
By MICHAEL VIRTANEN
Associated Press Writer
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ALBANY, N.Y. (AP) -- Hedge fund Ritchie Capital has settled investigations into late trading in 2001-2003 for $40 million, New York and federal regulators and the company said Tuesday.
Under the agreement, Ritchie Multi-Strategy Global Trading Ltd. will pay $30 million of "disgorgement" and $7.44 million in interest, which will be distributed to affected mutual funds. Ritchie Capital Management LLC, the fund's investment manager, agreed to pay a $2.5 million penalty.
"This agreement ensures that wrongdoers are held responsible, appropriate reforms are adopted, securities laws are honored and long-term investors are assured a level playing field," said New York Attorney General Andrew Cuomo, whose office investigated the case along with the federal Securities and Exchange Commission. Ritchie Capital Management separately agreed to adopt reforms, he said.
The investigation showed that from 2001 through 2003, Ritchie Capital - in concert with certain broker dealers such as Trautman Wasserman, CIBC Oppenheimer, Bear Stearns and Prudential - engaged in late trading, buying and selling mutual fund shares after the 4 p.m. close of the markets, Cuomo said. The company sold mutual funds at pre-close prices based on post-close information, using a complicated model to predict how the market would react on the next trading day, he said.
The SEC said that resulted in a profit of approximately $30 million.
Cuomo said Ritchie Capital and broker-dealers concealed late trading and manipulated time-stamped trade sheets to show transactions were done before the closing.
Under the settlement, the fund and investment manager neither admitted nor denied the investigators' findings.
"We are pleased to put this matter behind us, and we will continue our other efforts to maximize value for all of our investors," Thane Ritchie, CEO of Lisle, Ill.-based Ritchie Capital, said in a prepared statement.
The SEC order also named Thane Ritchie and two employees. "This action demonstrates the Commission's willingness to take strong action against hedge fund advisers and their employees when they violate the federal securities laws," said Linda Chatman Thomsen, director of the SEC's Division of Enforcement.
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