SEC: Las Vegas Investor Made $175M in Ill-Gotten Gains

December 23, 2003 (PLANSPONSOR.com) - A Las Vegas man who allegedly reaped about $175 million in profits from improper late trading and market timing of Alliance Capital Management mutual funds has been charged with civil fraud.

>The US Securities and Exchange Commission (SEC) charged that Daniel Calugar, through Security Brokerage Inc., made the profits between 2001 and 2003 through the fund trading activities, according to Dow Jones.

>Calugar allegedly transferred $50 million of proceeds from his scheme out of Massachusetts Financial Services on December 18, the same day the SEC instituted an enforcement action against Alliance Capital, according to Reuters.  Alliance Capital agreed to pay $250 million to settle SEC claims it defrauded investors by allowing market timing in some of its mutual funds (See  Alliance, Regulators Reach Settlement ).

>Based on these allegations, a federal judge issued a temporary restraining order against Daniel Calugar and Security Brokerage Inc., freezing their assets and ordering them to preserve financial documents.

“Our enforcement action and request for an asset freeze against Daniel Calugar further reflect the commission’s resolve to ensure that the proceeds of illegal late trading and market timing are returned to investors,” Stephen Cutler, the SEC’s director of enforcement, said in a statement.

>According to the SEC, Calugar, 49, agreed to make long-term investments in Alliance Capital hedge funds in exchange for Alliance allowing him to engage in market timing in its mutual funds. Alliance could then draw fees off the amount of assets in the hedge fund, while Calugar profited from quick in-and-out trades and late trading, regulators said.

>Calugar made a similar proposal to Massachusetts Financial Services, the SEC alleges, but that firm turned him down. Still, he was able to engage in some market timing in MFS, the SEC said in its action. He also engaged in late trading, the SEC said, which allows a trader to profit from market events that occur after 4 p.m. EST, but that are not reflected in the mutual fund’s price.

The agency’s settled action against Alliance identified Calugar as the largest market timer at the fund company.

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