Regulators are zeroing in on

Oppenheimer & Co.

(OPY) - Get Report

, a midsized brokerage that boasted one of Wall Street's more efficient market-timing operations during the heyday of abusive mutual fund trading.

A joint enforcement action against Oppenheimer by the

Securities and Exchange Commission

and New York Attorney General Eliot Spitzer is being considered, say people familiar with the inquiry. (The company is unrelated to Oppenheimer Funds.)

To that end, the SEC recently notified several current and former Oppenheimer executives and employees that they could face potential civil enforcement action, sources say. The move is an indication that the nearly 18-month investigation of Oppenheimer is coming to a conclusion.

An SEC official declined to comment on whether the agency had issued any so-called Wells notices to Oppenheimer employees. Dennis McNamara, Oppenheimer's corporate counsel, did not return several telephone calls to discuss the matter.

The identities of all the employees receiving Wells notices, which presage SEC enforcement actions, could not be confirmed.

But two Oppenheimer executives said to be facing regulatory scrutiny are Robert Okin, an Oppenheimer executive vice president, and Marshall Dornfeld, a managing director, people familiar with the inquiry say. Regulators have focused on the two executives because of the role each played at Oppenheimer in overseeing abusive mutual fund trading by former broker Michael Sassano and his former team of 15 traders and junior brokers.

Okin, the second-in-command in Oppenheimer's brokerage group, was Sassano's most senior supervisor. Up until last summer, Dornfeld was the director of Oppenheimer's financial services products division, which included the sale of mutual funds to the firm's customers. But as the investigation intensified last year, Dornfeld was effectively demoted and transferred from Oppenheimer's corporate offices in midtown Manhattan to a small branch office in Hauppauge on Long Island in New York.

Okin, reached at his Manhattan office, declined to comment on the investigation. Lawrence Iason, Okin's attorney, also declined to comment. Neither Dornfeld nor his attorney, Theodore Snyder, returned several telephone calls seeking a comment.

Sassano, meanwhile, remains uncharged in the abusive trading scandal that rocked the $8 trillion mutual fund industry.

TheStreet.com

reported previously that Sassano had one of the biggest

books of market-timing clients on Wall Street and in his best years

generated $15 million in commissions from frequent trading of mutual fund shares for a dozen big hedge funds.

Sassano's world began to crumble when Spitzer's office stunned the $8 trillion mutual fund industry in September 2003 with the news of his

crackdown on abusive trading. A year ago, Oppenheimer suspended Sassano and disbanded his 15-member team. By the end of December, all of the Sassano team members had left the firm.

Sassano's attorney, Ira Lee Sorkin, declined to comment on the investigation. Sassano, who was last known to be living in Russia, could not be reached for comment.

Regulators believe that much of Sassano's abusive trading in shares of mutual funds was sanctioned by some of Oppenheimer's top brass, who saw it as a potential profit center. In fact, sources say, mutual fund families that wanted Oppenheimer brokers to sell their funds to retail investors were often told to talk to Sassano about the possibility of allowing his wealthy hedge fund customers to market-time shares of those same mutual funds.

Sassano's team members were the only brokers at Oppenheimer permitted to engage in mutual fund market-timing, one of the abusive trading practices at the heart of the investigation that has netted about $3 billion in fines and restitution from a dozen mutual fund companies and brokerage firms.

A former mutual fund salesman, who didn't want to be identified, says there was a "symbiotic'' relationship between Sassano's market-timing group and the Oppenheimer mutual fund distribution group that was overseen by Dornfeld. The salesman says Dornfeld's group would sometimes lobby on Sassano's behalf if a mutual fund objected to some of the broker's market-timing activities.

Market-timing, or frequent trading of mutual fund shares, is a legal trading strategy. But it's prohibited under most mutual fund prospectuses because it can dilute the value of a portfolio's holdings.

In many respects, Oppenheimer served as a full-service firm for hedge funds looking to engage in abusive mutual fund trading. That was especially so when the brokerage firm was still owned by the

Canadian Imperial Bank of Commerce

(BCM) - Get Report

. Back then, Oppenheimer not only was a place wealthy hedge funds could come to engage in abusive mutual fund trading, but they could also get financing for their shady trading strategies.

The investigation of Oppenheimer also is looking into allegations of late trading by some of Sassano's customers. Late trading is the buying or selling of mutual fund shares after their 4 p.m. closing price, in order to take advantage of late-breaking or market-moving news. Regulators and prosecutors say late trading is illegal, and a number of offenders are facing criminal charges.

People who know Sassano say they weren't aware of any specific allegations involving illegal late trading. In corporate filings, Oppenheimer has denied that any late trading occurred, but acknowledges "that a limited number of its financial advisers may have engaged in activities that are the subject of the SEC's inquiry of mutual fund shares.''

In the early days of the investigation, Spitzer's office indicted former CIBC investment banker Paul Flynn on charges that he provided financing to hedge funds, some of them Sassano customers, that engaged in illegal late trading. The charges stem from a period when CIBC still owned Oppenheimer.

Flynn, who pleaded not guilty to the charges, is scheduled to go on trial this summer.

CIBC sold the brokerage group in January 2003 to

Fahenstock-Viner Holdings

, which subsequently adopted the Oppenheimer brand name.

Even before the Flynn indictment, Sassano found himself on the regulatory radar screen because he placed trades for many of the hedge funds that became ensnarled in the scandal. He also had close ties to a number of brokers at other firms and sometimes referred market-timing business to them.

Sassano became so enamored of his market-timing prowess that in early 2002, he even helped found a $200 million hedge fund,

Atlantique Capital

, whose primary trading strategy was mutual fund market-timing. It's believed Atlantique was named after the resort community on New York's Fire Island where Sassano had a summer home.

Investigators are said to be interested in Sassano's referrals to other brokers and his involvement in Atlantique, which got some of its financing for making trades from CIBC.

One of the people Sassano often referred business to was former

Prudential Securities

broker Martin Druffner, who the SEC has charged with engaging in deceptive and fraudulent market-timing activities. Regulators contend Druffner and a group of his associates in a Prudential officein Boston used hundreds of false accounts to conceal their frequent trading from mutual fund families. Federal prosecutors in Boston recently notified Druffner that he could soon face criminal charges.

Druffner and Sassano were college buddies. Over the years, Sassano referred about a half-dozen hedge funds to Druffner. But on at least one occasion, Druffner returned the favor for Sassano. Massachusetts regulators, in a civil action against

A.G. Edwards

( AGE), contend Druffner referred Atlantique as a customer to a broker in an A.G. Edwards office in Boston.

State regulators contend the former A.G. Edwards broker also used deceptive techniques to conceal his frequent trading on behalf of Atlantique. But an A.G. Edwards internal report, included as an exhibit in the Massachusetts complaint, intimated that Atlantique also may have engaged in late trading, noting that some Atlantique trades were submitted "after market close.''

Atlantique also found a friend in another former Prudential broker, Frederick O'Meally, who also had long-standing ties to Sassano.

O'Meally worked out of Prudential's office in Garden City, N.Y., located just a few blocks from Atlantique's former office. People familiar with O'Meally say he had a bigger book of market-timing business than Druffner and came close to rivaling Sassano. In an interview with the SEC more than a year ago, O'Meally said Atlantique was one of his customers, according to a person who has seen a copy of the deposition transcript.

Early in their careers, O'Meally and Sassano worked together at

Lehman Brothers

( LEH) and became fast friends. Sassano sometimes attended parties for mutual fund company salesmen that O'Meally organized on his boat, which was dubbed "Club Fred.''

Peter Fleming, O'Meally's lawyer, said regulators have never asked his client about any ties or business dealings with Sassano. Like Sassano, regulators have not charged O'Meally with any wrongdoing in the mutual fund scandal.