The SEC, in part of its ongoing crackdown on scandals tied to the mutual fund industry, moved ahead with a lawsuit against Daniel G. Calugar, who in the past two years netted more than $175 million by actively trading investments offered by Alliance Capital and MFS, The New York Times reports.
And New York State Attorney General Eliot Spitzer is also considering pressing separate charges alleging improper trading activities against Calugar.
Calugar, a 50-year-old attorney who launched a private brokerage business in Las Vegas dubbed Security Brokerage, which he has now shut down, profited by trading mutual funds after 4 p.m., a blatant violation of securities regulations known as late-trading, according to regulators. Calugar, who one source called a "Zelig" master of disguise, avoided detection until recently by often running late orders through his own firm and logging the trades at 3:59 p.m. Calugars personal history of aggressive mutual fund trading dates back to the 1980s. By 2003, his own investment portfolio reportedly grew to $500 million.
Franklin Resources, another large investment provider, permitted Calugars firm to trade its funds and subsequently received a $10 million investment in at least one hedge fund, authorities noted. Calugar also invested $60 million in hedge funds at Alliance. Franklin and Alliance benefited from the relationship because commissions on hedge funds are potentially much larger than mutual funds.
Soon after regulators launched their investigation, Calugar withdrew $350 million from accounts at MFS, shuttered Security Brokerage and departed the United States.