Daniel Calugar is the lone wolf of the mutual fund trading scandal.
Regulators have found that the Las Vegas man, who they allege made at least $175 million in illicit profits from trading mutual fund shares, had few, if any, ties to the dozens of brokers, middlemen and hedge funds that have been implicated in the far-reaching scandal.
Most of the main players in the shady world of mutual fund market-timers and late traders had never heard of the former tax lawyer before the
Securities and Exchange Commission
charged him in December with securities fraud.
Before the SEC action, Calugar's biggest claim to fame might have been an appearance on a CBS national news program in 1994 discussing "millionaire bachelors" looking for love. On the show, Calugar talked about a personal ad he had placed in
magazine, offering to pay $100,000 to "the person who introduces me to the woman I marry."
Yet somehow, working with fewer than a handful of employees, he managed to turn his now-defunct Security Brokerage into the mutual fund equivalent of a Wall Street boiler room -- and a hugely profitable one at that. Regulatory records reveal that the small brokerage, established in 1996, never had any retail customers and did little, if any, stock trading.
The brokerage's main reason for being was to clear and process Calugar's own mutual fund trades, making it easier for him to engage in improper trading and minimizing the need to bring others into the fold.
The SEC has alleged that the key to Calugar's scheme was a secret agreement he negotiated with officials at
to make hundreds of unethical trades. He also "participated in a scheme" with
Sun Life Financial's
Massachusetts Financial Services
that permitted him to engage in market timing while other investors couldn't.
The SEC has alleged that the key to Calugar's scheme was a series of hidden agreements he negotiated with officials at
Sun Life Financial's
Massachusetts Financial Services, which permitted him to make hundreds of unethical trades.
Earlier this month, Massachusetts state regulators filed a separate action, alleging Calugar had a similar secret trading arrangement with
, parent company of the
But just how Calugar, who is said to live in both Las Vegas and Los Angeles, made the transition from a partner in a respected Atlanta law firm to a wealthy rogue trader remains a mystery.
Colin Murray, a San Diego attorney who represents Calugar, declined to comment for this story. Mark Cook, a Las Vegas lawyer who did legal work for Security Brokerage, also would not comment. Calugar's assets are now frozen.
A relative, who didn't want to be identified, said Calugar didn't come from a wealthy family and had amassed his fortune on his own. Another person, who knew the former lawyer in the early 1990s, said Calugar had bragged about having an investment portfolio worth $20 million.
It's not known whether the $500 million the SEC said Calugar used to market-time mutual fund shares was all his, or included money from other investors.
Several of Calugar's former colleagues at Hansell & Post in Atlanta, now part of the big Cleveland-based law firm Jones Day, either declined to comment, or claimed to have only a distant memory of the 49-year-old University of Florida Law School graduate. Calugar worked at the firm during much of the 1980s, but left Atlanta in the early 1990s and moved to Jacksonville, Fla.
By the time Calugar arrived in Florida, he had largely given up practicing law. A person who knew Calugar at the time said he wasn't even aware Calugar was a lawyer. He remembered Calugar calling himself an investor and a trader.
Calugar relocated to Las Vegas sometime in the mid-1990s. A short while after, he opened Security Brokerage in an office building on Howard Hughes Parkway.
Calugar's success shows that despite claims to the contrary by the mutual fund industry, improper trading was not the esoteric province of a lot of numbers-crunching professionals. As long as a wealthy investor like Calugar knew the right strings to pull, it wasn't hard to become a prolific mutual fund market-timer.
Market-timing is the term for a legal but frowned-upon trading strategy in which mutual fund shares are bought and sold frequently in order to profit from price differences in different markets. It's harmful for the vast majority of mutual fund investors, because it can dilute the value of a fund by driving up trading and administrative costs.
Late trading is an even more serious offense. It means a mutual fund company permits a favored customer to buy shares that were priced prior to the release of market-moving news, giving the investors an unfair advantage.
"Anyone could have done it," said James Nesfield, a former consultant to Edward Stern's
Canary Capital Partners
, the first hedge fund to get snared by regulators in the mutual fund investigation. "Most people could figure out the strategy. Many of the mutual funds were all too willing to assist."
A brokerage official who knew of Calugar, but who never did business with him, said anyone with lots of money who was interested in market-timing would have had no difficulty finding a mutual fund that would accommodate him. The broker, who didn't want to be identified, said, "this stuff was no secret ... and fund companies made themselves more than open."
Indeed, the investigation into the $7 trillion mutual fund industry has made it all too clear that many fund companies were willing to bend or ignore rules against market-timing and late trading when it came to a privileged group of hedge funds and their brokers. The SEC contends that Calugar had about a half-billion dollars at his disposal for improper trading.