For the moment, however, Spitzer’s focus is still on mutual fund companies over allegations of market timing and late trading. David Brown, the head of Spitzer’s Investment Protection Bureau, revealed that there are 10 to 20 other companies that the attorney general’s office knows are having problems in their trading practices in addition to the companies that have already struck settlements with regulators, Dow Jones reported.
Brown said in almost every instance the arrangements to accommodate market- timers were known by the very senior management people within these companies. He added that virtually all of the cases where market-timing took place after 2000 also saw illegal after-hour late trading. “The view of our office is that late trading is criminal,” Brown said
Regarding a potential investigation expansion into variable annuity trading practices, Brown, speaking at a New York City conference of the Securities Industry Association, said the attorney general was “very interested in” and “concerned about” goings on in the annuity space and that some type of regulatory move is likely.
In another sign of possible regulatory moves to come, Brown said the attorney general is also interested in the roles played by hedge funds and law firms and that Spitzer “would not hesitate” to go after law firms that were aware of, and approved, improper fund trading.
The Spitzer deputy said he would like to see fund companies be more proactive in reporting the results of their trading practices to his office. “We are somewhat disappointed” at the lack of action in this area by mutual- fund companies, Brown said. He added that self-reporting “makes a big difference” from the regulatory standpoint and that companies that do so are “in a better position” to hammer out a settlement with his office.
Variable annuities are essentially mutual-fund products wrapped in insurance contracts offered by insurance companies.