, a small Florida brokerage that was implicated in the mutual fund-trading scandal seven months ago, said Thursday that federal regulators intend to bring civil charges against it.
Empire, Chief Executive Kevin Gagne and several former employees received Wells notices from the agency warning of pending enforcement action. The company, which was subpoenaed in November, couldn't be reached for comment.
While obscure, Empire's profile has been heightened by its connection to
, the big Wall Street bank whose clearing division has become the focus of intense scrutiny by regulators probing the mutual fund scandal.
Empire is one of a number of brokerages and hedge funds implicated in the scandal that used Bear Stearns to clear and process its abusive trades. It is also named as a defendant in a class-action lawsuit that alleges Bear Stearns' clearing operation actively assisted brokers and hedge funds involved in market timing and late trading.
previously reported that Bear Stearns' clearing operation, one of the biggest on Wall Street,
is being probed by the
because of its role as conduit between scores of mutual fund families and dozens of small brokerages and hedge funds connected to the far-reaching trading scandal.
Investigators are trying to determine whether Bear may have aided and abetted this abusive trading either by turning a blind eye to the activity, or actively assisting the rogue traders.
Sources familiar with the investigation say SEC attorneys in New York are close to wrapping up their investigation of Bear Stearns and could make a recommendation on whether to pursue an enforcement action as early as next month.
Bear Stearns has denied the allegation. A spokesman declined to comment Thursday.
Empire previously acknowledged doing business with the now-infamous Canary Capital Partners, the New Jersey hedge fund that agreed to a $40 million settlement with New York Attorney General Eliot Spitzer when the scandal broke last fall. Among the abuses Canary allegedly carried out were late trading, in which mutual fund orders are placed at stale prices, and market-timing, a sophisticated arbitrage strategy involving lots of rapid-fire trades in a single fund.
previously has reported that Empire was one
of the more aggressive brokerages in arranging market-timing trades for hedge funds, investment advisers and other wealthy investors.
The move against Empire comes as the SEC is stepping up its inquiry into the role brokerages played in the trading scandal, an area of focus largely ignored by Spitzer, who has mainly taken action against the mutual fund companies and their executives.
Besides Empire, the SEC previously has notified Los Angeles-based brokerage
that it intends to file civil charges against it over its role in the mutual fund scandal. Like the investigation of Bear Stearns, the potential charges against J.B. Oxford involve allegations against the firm's small trade-processing division, which cleared and processed some trades for Canary Capital.
J.B. Oxford's clearing operation pales in size to Bear Stearns, which processes trades for hundreds of small brokerages and hedge funds.
Clearing is an arcane but crucial service on Wall Street in which a firm acts as a middleman for parties doing stock and bond transactions. The clearing divisions of big Wall Street firms like Bear are crucial to the hundreds of smaller brokerages -- known as "correspondents" -- that lack the financial resources and back-office muscle to make sure big sales of securities go off smoothly.
Regulators are said to be looking for patterns that would show that however passive Bear's role might have been in clearing trades, its permissiveness -- particularly with big clients -- amounted to an invitation to game the system.
Bank of America
, which formerly owned Columbia, paid a $515 million fine to settle allegations over their role in the trading scandal. Bank of America acquired Fleet in April.
As originally published, this story contained an error. Please see
Corrections and Clarifications.