The SEC said it charged Brent Federighi and Michael Hoffman over their co-management of the Ilytat hedge fund between 2000 and 2002, and over Federighi’s conduct from September 2002 to October 2003 in managing the Gage Capital hedge fund after Ilytat closed.
The two defrauded shareholders of about $49 million, the SEC alleged.
Tarek Helou, an attorney for Hoffman, told Reuters that his client ended late trading years ago and had nothing to do with the entities that the SEC alleges continued the practice. An attorney for Federighi could not be reached.
“Federighi and Hoffman deliberately exploited a loophole in their broker’s mutual fund order entry system to place over 3,000 fraudulent late trades,” the SEC alleged in the documents filed in the US District Court for the Northern District of California. “In addition, Federighi and Hoffman allegedly engaged in short-term trading in mutual funds, in violation of the mutual funds’ rules,” the commission alleged.
The SEC said it is seeking injunctions and unspecified fines and disgorgement of all ill-gotten gains.
The ongoing state/federal fund industry probe has focused on market timing, late trading and certain sales practices.