Dallas broker/dealer Southwest Securities has agreed to pay $10 million for allegedly failing to prevent its registered reps from submitting market-timing and late-trading mutual fund trades. Three managers and two brokers were also named in the suit, filed jointly by the New York Stock Exchange and the Securities and Exchange Commission.
Of the $10 million fine, $8 million is a civil penalty and $2 million is in disgorgement. The company has also agreed to undertake a number of measures to prevent future misconduct. The three managers, meanwhile, have been banned from acting as supervisors at any broker/dealer or investment advisor for a year. The firm's former president and CEO, Daniel R. Leland, is paying $1 million in disgorgement and a civil penalty of $200,000. Kerry M. Rigdon, formerly SVP and director of the private client group, is paying $1 in disgorgement and a civil penalty of $50,000. The third manager, Kevin J. Marsh, a former VP and branch manager of the downtown Dallas office, is also paying $1 in disgorgement along with a civil penalty of $25,000. The two brokers named in the case are Scott B. Gann and George B. Fasciano.
The NYSE and the SEC brought the case against Southwest and three of its managers to send a clear message that broker/dealer executives must respond quickly when they suspect late trading or market timing by employees or customers, commented Harold Degenhardt, director of the SEC's Fort Worth office. The suit charges that the Southwest executives sought to trick more than 30 of its mutual fund partners into accepting the trades, which had rules against them, by grouping multiple customer accounts and even broker identification and branch office numbers together. In settling the action, however, the firm and its executives neither admitted to nor denied the charges.
"This action sends a strong message that member firms and their managers must diligently supervise their mutual fund trading business to prevent and detect market timing and late trading," added Susan Merill, chief of enforcement in the New York Stock Exchange's regulation division.