This Day On The Street
Continue to site
ADVERTISEMENT
This account is pending registration confirmation. Please click on the link within the confirmation email previously sent you to complete registration.
Need a new registration confirmation email? Click here

Focus in Fund Scandal Turns to Bear Stearns

The legal opinions, meanwhile, are said to focus on what some see as a potential loophole in the securities regulation that's supposed to prohibit late trading -- the "price forward rule." These opinions point out that the regulation never states that all orders to buy or sell mutual fund shares must be submitted to the fund company by the 4 p.m. close of the trading day.

This omission in the price forward rule may leave the door open for late trading through a broker intermediary, as long as it takes place before a mutual fund company calculates that day's net asset value, or NAV, for the shares of a particular fund. Many mutual funds don't actually calculate the NAVs for their funds until 5:30 p.m.

An attorney familiar with this legal thinking said that because few mutual funds are actually priced at 4 p.m., it's debatable whether that's the true deadline for submitting all orders to buy and sell. Indeed, the mutual fund industry itself has acknowledged implicitly that the price forward rule prohibition on late trading may not be as airtight as prosecutors contend.

In fact, an agreement the Canary hedge fund had with Kaplan Securities appears to have tried to take advantage of this 90-minute late-trading window. Under the agreement, Canary had to submit a list of mutual fund trades to Kaplan by 2:30 p.m. each day, but Canary had until 4:30 p.m. to either confirm or cancel those trades.

Presumably, Canary was able to use the half-hour after the market's close to determine whether any late-breaking news would have an impact on the shares of the funds it wanted to purchase.

Bear Stearns, according to a copy of the agreement, was the clearing firm for all those trades. The agreement states: "Kaplan & Co. will function as the broker in regards to arranging, on a best-efforts basis, market-timing agreements with Bear Stearns and/or mutual fund companies."

An official for Kaplan said the company believes all its activities did not violate any securities regulations.

5 of 5

Check Out Our Best Services for Investors

Action Alerts PLUS

Portfolio Manager Jim Cramer and Director of Research Jack Mohr reveal their investment tactics while giving advanced notice before every trade.

Product Features:
  • $2.5+ million portfolio
  • Large-cap and dividend focus
  • Intraday trade alerts from Cramer
Quant Ratings

Access the tool that DOMINATES the Russell 2000 and the S&P 500.

Product Features:
  • Buy, hold, or sell recommendations for over 4,300 stocks
  • Unlimited research reports on your favorite stocks
  • A custom stock screener
Stocks Under $10

David Peltier uncovers low dollar stocks with serious upside potential that are flying under Wall Street's radar.

Product Features:
  • Model portfolio
  • Stocks trading below $10
  • Intraday trade alerts
14-Days Free
Only $9.95
14-Days Free
Dividend Stock Advisor

David Peltier identifies the best of breed dividend stocks that will pay a reliable AND significant income stream.

Product Features:
  • Diversified model portfolio of dividend stocks
  • Updates with exact steps to take - BUY, HOLD, SELL
Trifecta Stocks

Every recommendation goes through 3 layers of intense scrutiny—quantitative, fundamental and technical analysis—to maximize profit potential and minimize risk.

Product Features:
  • Model Portfolio
  • Intra Day Trade alerts
  • Access to Quant Ratings
Options Profits

Our options trading pros provide over 100 monthly option trading ideas and strategies to help you become a well-seasoned trader.

Product Features:
  • Actionable options commentary and news
  • Real-time trading community
SYM TRADE IT LAST %CHG
BAC $16.75 0.00%
JNS $17.85 0.00%
MCC $9.27 0.00%
AAPL $132.54 0.00%
FB $80.54 0.00%

Markets

DOW 18,232.02 -53.72 -0.29%
S&P 500 2,126.06 -4.76 -0.22%
NASDAQ 5,089.3620 -1.4320 -0.03%

Partners Compare Online Brokers

Free Reports

Top Rated Stocks Top Rated Funds Top Rated ETFs