The settlement, reached via a joint effort by both the SEC and Spitzers office, ordered Fremont to pay $4.146 million in penalties $2.146 million in restitution and $2 million in civil penalties.
Spitzers investigation into Canary Capital, the first company implicated in the mutual fund scandal, uncovered transgressions by many other companies, including Fremont. Fremont permitted two firms to execute in-and-out trades from January 2001 to October 2002, to those companies benefit and at regular shareholders expense. Not only did Fremont not disclose these trades to investors, but the company had wording in its prospectuses that was supposed to disallow them. Furthermore, the investigation showed that an FIA employee allowed a brokerage firm to trade fund shares after the mandated 4 p.m. deadline, a violation of securities laws called late trading.
For Fremont, a San Francisco-based advisor with about $2.8 billion in assets in 12 mutual funds, the settlement included the promise that it would take certain "corrective measures" to make sure similar violations would not occur in the future.
"By permitting select customers to engage in market timing and late trading, Fremont ignored its responsibility to treat all fund shareholders fairly and honestly, said SEC assistant district administrator for the San Francisco branch, Marc Fagel. "This is a disturbing indicator that the abuses we have seen in the industry extended even to smaller, regional firms." Said Spitzer, "The lesson from this long-running investigation is that you must not have one set of rules for privileged insiders and another set for everyday investors."
