A pair of prominent European hedge funds mixed up in the mutual fund scandals here have left the European community vulnerable to The Securities and Exchange Commission, Financial News reported.
British hedge fund providers Headstart Advisors and Pentagon Asset Management, along with five domestic alternative investment firms, were charged by the SEC with participating in a scheme to plunder $1.4 billion from at least 50 American mutual fund companies between June 2001 and Sept. 2003. The charges stem from an American branch office of Prudential Securities in which five brokers allegedly conducted improper trading activities under phony pseudonyms to avoid detection from compliance officers.
Dozens of trades in the Prudential branch office were conducted on behalf of Headstart and Pentagon. Both British firms allegedly utilized the 5-hour time difference between the United Kingdom and the U.S. to take advantage of the stale prices of some mutual fund holdings, a system formally known as market arbitrage. Regulators have accused the hedge funds of using phony names to execute mutual fund trades that would have otherwise been illegal. As a result of these shenanigans the regulators have embraced a new rule requiring most European hedge fund advisors to register with the SEC.