Updated from 1:15 p.m. EDT
A former trader with a hedge fund founded by 1980s buyout speculator Israel Englander pleaded guilty Thursday to crimes including late trading in mutual fund shares. He is cooperating in an ongoing probe of "numerous" fund families.
Steve Markovitz, a former trader with Millennium Partners, faces up to four years in prison when sentenced Dec. 15 in New York State Supreme Court.
Markovitz admitted he engaged in sure-thing bets on mutual fund shares with the cooperation of several different brokers, none of which was named by authorities. The scam involves buying shares at their 4 p.m. closing price long after 4 p.m. and capturing profit on price movements that occur during the interval.
The charges were filed by New York State Attorney General Eliot Spitzer, who shocked Wall Street last month with news that his office was investigating allegations of illegal trading activities between hedge funds and mutual funds.
In a related action brought by the
Securities and Exchange Commission
, Markovitz, 41, agreed to a lifetime ban from association with an investment adviser or mutual fund. Markowitz resigned from Millennium in mid-September, after the firm received a subpoena from Spitzer's office seeking information about its trading activities.
Tom Daly, a spokesman for Millennium, declined to comment. Markovitz's lawyer, Thomas Fitzpatrick, also declined to comment.
Court documents quoted a Spitzer investigator saying: "I am also informed by the defendant that the defendant and several broker-dealers placed numerous orders on behalf of Millennium Partners to purchase and sell shares of mutual funds after 4 p.m. and that the broker-dealers executed each of these orders at a price that was only lawfully available to investors who had placed their orders before 4 p.m."
Millennium, a $3 billion fund manager founded by Englander, is located at 666 Fifth Avenue in Manhattan. Earlier this year, Millennium led a group of dissident shareholders in taking control of
, a business development company.
Englander is a onetime associate of John A. Mulheren, the storied arbitrager who was arrested on gun charges in 1988 and later convicted of insider trading in the investigation that brought down Ivan Boesky. Englander and Mulheren were managing partners of the takeover fund Jamie Securities. (Mulheren's conviction was later thrown out on appeal.)
Markovitz is the second person charged with a criminal offense in the Spitzer inquiry. It's not known what mutual funds are involved in the case. At this time, no charges are being filed against Millennium or anyone else at the hedge fund.
Last month, former
Bank of America
mutual fund broker Theodore Sihpol was charged with larceny and securities fraud for his role in a scheme to allow the Canary Capital Management hedge fund to engage in late trading in mutual funds shares. Siphol, who pleaded not guilty, worked for a division that oversaw BofA's Nations Fund mutual fund family.
The criminal charge against Siphol came just a few days after Spitzer announced that Edward Stern, Canary's managing partner, paid a $40 million fine to settle a civil lawsuit that held that Nations Fund had permitted Canary to engage in late trading -- an absolute no-no in the mutual fund business.
Spitzer's office also is investigating allegations that mutual funds permitted hedge funds and other to engage in "market timing,'' a practice that is not necessarily illegal but often violates mutual fund charters.
The mutual fund business has been under investigations the past few months from Spitzer's officer, the
Securities and Exchange Commission
and Massachusetts securities regulators. The inquiries have led to firings and resignations at a number of financial firms, including BofA Nations Funds,
, a division of