Federal regulators filed charges against hedge fund manager Simpson Capital Management for allegedly defrauding mutual fund investors of millions of dollars in a late-trading scheme lasting more than three years.
In a civil suit, the
Securities and Exchange Commission
accused the New York-based hedge fund, its president and owner Robert A. Simpson and its head trader, John C. Dowling, of defrauding mutual funds of more than $57 million by placing illegal late trades after the close of the market between May 2000 through September 2003.
The complaint was filed in the U.S. District Court for the Southern District of New York, according to an SEC press release on Wednesday.
The charges against Simpson Capital add to the SEC's crusade in the mutual fund market-timing scandal that began in the earlier part of the decade. Along with Eliot Spitzer -- New York's former attorney general and now its governor -- the SEC has charged dozens of firms for abusive mutual fund trading.
The targets have included the mutual fund firms themselves, the traders and broker-dealers that assisted hedge funds and other traders in the schemes.
Simpson Capital is the investment adviser to two hedge funds: Simpson Partners and Simpson Offshore.
According to the SEC, the late trades enabled the firm to buy, redeem or exchange mutual fund shares after the market closed while still receiving the current day's mutual fund price, otherwise known as the "net asset value."
Simpson and Dowling allegedly used five separate broker-dealers to place more than 10,700 trades in over 375 mutual funds after the market closed, the SEC said.
The broker-dealers included Kaplan & Co. of Boca Raton, Fla., Wall Street Access of New York and three "introducing" broker-dealers, which cleared trades through the brokerage arm of
Bank of America
and a unit of
, the SEC alleges in the complaint.
In addition, Robert Simpson, who was an investor in the two hedge funds, personally earned at least $19 million through fees and profits, while Dowling received nearly $1 million in salary and bonuses from the scheme, the SEC said.
The agency is seeking permanent injunctions, disgorgement of all ill-gotten gains and civil fines from Simpson Capital.
Dowling's attorney denied the charges in a statement sent to
. An attorney for Simpson did not return a phone call seeking comment.
Interestingly, Simpson developed the trading strategies by working with his brother-in-law at the time, Edward Stern of Canary Capital Partners. Canary was the poster child for abusive mutual fund trading, as it was the first firm slapped with a complaint from Spitzer in 2003.