The Securities and Exchange Commission filed civil charges against broker/dealer National Clearing Corp. (NCC) and its parent company, JB Oxford Holdings (JBOH), for allowing customers to engage in late trading and improper market-timing activities. According to the SEC complaint filed in the U.S. District Court of Los Angeles, each of the defendants facilitated thousands of market-timing and late trades in more than 600 mutual funds between June 2002 and Sept. 2003.
The SEC also directly charged three executives with improper trading activities. They are: James Lewis, former president and CEO at JBOH and president and CEO at NCC; Kraig Kible, NCC's director of operations; and James Yin, NCC's president of correspondent services. The charges reflect an attempt by the SEC to widen its probe of improper trading at mutual fund companies to include clearing firms.
"Our investigations of late trading and abusive market timing have implicated not only traders and mutual fund advisors, but also financial intermediaries. As today's action demonstrates, we will hold accountable all those market participants, including their management, who engage in or facilitate conduct that harms the investing public," said Stephen Cutler, the SEC's director of enforcement.
In exchange for placing late trades of mutual fund shares, NCC netted $1 million by charging institutional investors a 1% custodial fee, according to the SEC's complaint. Institutional investors who participated in the scheme reaped an estimated $8 million in profits, the complaint maintains. Lewis, Kible and Lin allegedly bypassed mutual fund companies' trading rules by routing orders through new accounts instead of previously restricted accounts.