Secretary of State William Galvin charged that A.G. Edwards ordered its employees to first get an indemnity agreement from certain clients and then to allow them to market time “to the disadvantage of other shareholders,” the Associated Press reported. “They knew it was wrong and they sought to avoid the consequences,” Galvin told reporters. The state’s action against A.G. Edwards is seeking compensation for fund shareholder losses as well as a fine.
The complaint alleges that an A.G. Edwards representative at the firm’s Boston office, Charles Sacco, market timed trades for two offshore hedge fund customers, Headstart Asset Management and Atlantique Capital, between 2001 and 2003. Of the 35,000 trades executed in that office between January 2, 2001, and October 24, 2003, about 31,000 were fund timing trades, Galvin said.
According to the regulator, the market timed trades involved hundreds of mutual funds and that market-timing activity in one London-based hedge fund alone was almost $2 billion. The complaint says Sacco’s trading was so profitable that managers rewarded him with a “window office” and sent him congratulatory letters. It says the firm “created a system and culture that allowed at least one representative to engage in an illegal market timing scheme and allowed the representative’s supervisors to ignore indications of irregularities or ‘red flags.'”
The National Association of Securities Dealers ordered a one-year suspension of Sacco’s brokerage license on September 20 because of market-timing allegations, according to a list of disciplinary actions on the organization’s Web site.