New York Attorney General Eliot Spitzer filed a lawsuit against two hedge funds and their principals for fraudulently timing mutual funds through Security Trust Co.
Named in the suit are Samaritan Asset Management, Johnson Capital Management and their principals, Edward T. Owens and Michael A. Johnson.
Spitzer's office said the hedge funds disguised timing to "fly below the radar" by piggybacking them to the investment accounts of retirement plans and by varying the amounts of the buy and sell trades.
"When trading the piggyback accounts, try to adjust the buy and sell amounts," an employee of Security Trust advised Johnson in an e-mail, "meaning, do not complete the sell trades for the same amount as the buy trade from the previous day. Same with [exchanges]. Do not use the same amountvary each in and out trade. This will assist us in trying not to bring attention to the trading."
The suit, filed in New York Supreme Court, seeks to prevent the defendants from market timing funds and restitution of their ill-gotten financial gains.
The case came as a result of a previous lawsuit Spitzer brought against Grant Seeger, the CEO of Security Trust, and William Kenyon, the firm's president. Seeger pled guilty in 2005 in New York Supreme Court to second-degree grand larceny and a violation of the Martin Act, while Kenyon pled guilty to violation of the Martin Act.
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