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Updated from 4:04 p.m. EDT

The legal woes for Michael Lauer and his Lancer Group hedge fund empire keep mounting. The latest headache follows a guilty plea by one of his former employees.

Bruce Cowen, described by federal prosecutors as a Lancer managing director, pleaded guilty Thursday in a Miami federal courtroom to conspiring to commit securities fraud and participating in a plan to manipulate the price of a stock owned by the Lancer fund.

Cowen was arrested last year as part of massive undercover securities fraud investigation by federal authorities in south Florida. It was through that investigation that federal prosecutors say they "unearthed a larger conspiracy" involving the Lancer hedge fund and a scheme to manipulate and control the stock of

Lighthouse Fast Ferry

-- a New York City-area ferry company that filed for bankruptcy in January.

The Lancer Group, which at one time claimed to have $1 billion in assets, had owned about 62% of Lighthouse's shares. Prosecutors allege that Cowen helped Lancer artificially inflate share price of Lighthouse's stock so Lancer could claim to investors that its holdings "were more valuable than they truly were."

Cowen's lawyer could not be reached for comment. Cowen could be sentenced to serve up to five years in prison. As part of his plea deal, Cowen has agreed to cooperate with prosecutors and provide them with any testimony and documents that can aid them in their continuing investigation.

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Cowen's conviction comes on the heels of the

Securities and Exchange Commission

filing a civil complaint last month that charged Lauer and Lancer with engaging in a "scheme to over-inflate the performances and net asset values" of three different investment funds. In response to the SEC action, U.S. District Judge William Zloch has frozen the assets of a Connecticut-based hedge fund and appointed a receiver to manage its affairs.

The SEC contends that Lancer "systematically manipulated" the month-end closing prices of certain small-cap stocks in which it had invested. It's a manipulative practice that's called "marking the close," and it occurs when a fund manager buys up large quantities of stock on the last few days of each month. It works best in thinly traded stocks, because a big purchase by a single buyer can cause a sharp rise in the price of a stock.

The criminal case against Cowen includes a similar allegation of "marking the close" in the stock of Lighthouse. Prosecutors allege that Cowen hid transactions through "an offshore financial account'' and made use of fictitious invoices.

Unlike most hedge funds, Lancer invested a disproportionate amount of its money in thinly traded small-cap stocks.

But like many big hedge funds, Lauer was able to attract a number of wealthy and famous investors. Among the more notable investors in Lancer were pop singer Britney Spears and Sotheby's former chairman A. Alfred Taubman.

Federal prosecutors, despite the SEC civil action, have yet to file criminal charges against Lauer or his Lancer hedge fund.