The first criminal case against a hedge fund for market timing has been filed, the Philadelphia Courier-Post reports.
U.S. Attorney Pat Meehan has charged Thomas Gerbasio and Beacon Rock Capital with opening multiple accounts with mutual funds with the express purpose of defrauding mutual funds of $2.4 million in profits through 26,000 trades.
If they are convicted, the government could fine Beacon Rock $25 million and Gerbasio $5 million and send him to up to 20 years in prison.
“These defendants would not have been able to make the money that they did on the trades had they not misrepresented themselves to the mutual funds,” Meehan said. “This is where the fraud occurred.
“Gerbasio and Beacon Rock were aware of and received numerous warnings from mutual fund companies that market timing was unwanted and potentially harmful to their shareholders,” Meehan continued. “The defendants simply found a way around the obstacles by cheating.”