Updated from 12:52 p.m. EST
Daniel Calugar, the former Florida lawyer who quietly became one of the biggest players in the mutual fund trading scandal, pleaded guilty Wednesday to a criminal securities fraud charge in New York.
Calugar entered a guilty plea to a felony charge of securities fraud in New York state Supreme Court in Manhatt. Calugar, who ran up hundreds of millions of dollars in personal profits using illicit mutual fund trading strategies, joins a short list of defendants to face successful criminal prosecution in the nearly three-year-old scandal.
In a two-page plea agreement, Calugar admitted to engaging in deceptive market-timing, or frequent trading of mutual fund shares. Specifically, he acknowledged he had a "secret agreement" to engage in market-timing of the Franklin Mutual Funds, a unit of
Earlier this month, Calugar reached a tentative settlement with the
Securities and Exchange Commission
under which he will pay $153 million in fines and restitution to settle allegations of abusive trading. The SEC action is separate from the criminal case, which was brought by New York Attorney General Eliot Spitzer.
He could be sentenced to up to four years in jail for the criminal count. Spitzer's office has not yet made a sentencing recommendation. Calugar, who appeared in court wearing a gray suit with an open collar and no tie, was released on his own recognizance.
Justice James Yates did not set a sentencing date. He said he wouldn't impose any additional fine on Calugar, given his "substantial'' settlement with the SEC.
In a 20-minute court proceeding, Calugar didn't say much, except to read a brief excerpt from the plea agreement and say, "Your honor, I plead guilty.''
Authorities have been pursuing Calugar since December 2003, when regulators went to court to freeze more than $500 million in assets controlled by his now-defunct Las Vegas-based Security Brokerage.
In the world of mutual fund arbitrage, the 51-year-old Calugar stood apart both in the size of his profits and the creativity of his subterfuge.
Working with just a handful of employees, Calugar managed to turn Security Brokerage into a personal vehicle for the pursuit of ethically questionable mutual fund trading. Regulatory records reveal that the small brokerage, established in 1996, never had any retail customers and did little, if any, stock-trading for the public. Most of the trading was done for Calugar's own account.
In court filings, the SEC alleged that Calugar was both a prolific late trader and market-timer in funds offered by a number of mutual fund families, including Massachusetts Financial Services, a division of
Sun Life Financial
. Regulators also charged Calugar negotiated a number of secret market-timing deals with officials
, the parent company of the Franklin/Templeton funds.