Updated from 7:16 a.m. EST

Michael Sassano, the Oppenheimer & Co. ( OPY) stockbroker whose market-timing connections have caught the eye of regulators, wasn't content just to sit and watch while his investors got rich.

Sassano wanted to run his own hedge fund, according to several people who know him.

TheStreet.com reported Tuesday that Sassano has piqued the interest of securities regulators investigating improper trading in the mutual fund industry because of his reputation on Wall Street as someone with a big list of market-timing customers. That he coveted a vehicle to trade for his own account suggests Sassano had ambitions to leverage the culture of mutual fund market-timing that grew up around him in the late 1990s, and atop which, sources say, he sat.

New York Attorney General Eliot Spitzer's office has already subpoenaed records from Oppenheimer to learn more about how Sassano carved out his lucrative niche putting fast money together with mutual funds that could be market-timed. (Oppenheimer & Co. is unrelated to OppenheimerFunds.)

Market-timing is the term for a legal but strongly discouraged trading strategy in which mutual fund shares are bought and sold frequently to capitalize on price discrepancies in different markets. The rapid-fire trading is 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.

Most fund companies disclose in their prospectuses that they try to ferret out and stop market-timers. But investigators have found that far too many fund companies were willing to bend or ignore those rules when it came to a privileged group of hedge funds and their brokers.

Sassano's interest in managing a hedge fund, however, puts a new wrinkle in this story because it shows how commonplace market-timing had become on Wall Street.

Back in 2001, Sassano approached a number of people at his then-employer, CIBC World Markets, about the possibility of running a hedge fund, several sources said. The 33-year-old broker even had a name picked out: Atlantique Capital Advisors.

His employers were unenthusiastic and told Sassano that such a role would be inappropriate. But sources said CIBC officials also told Sassano that they had no objections if he -- or any other broker -- wanted to invest in a hedge fund.

From there, the story about Sassano's involvement with Atlantique -- which opened for business in early 2002 -- gets murky.

Corporate records show that Atlantique Capital Advisors, which operates from an office in Garden City, N.Y., with fewer than 10 employees, was formed on Oct. 2, 2001. That's roughly the same time Sassano had his conversations with CIBC. The hedge fund's main investment portfolio -- Atlantique Capital Offshore Fund -- formally opened for business on Jan. 10, 2002.

Several people said Sassano was an investor in the hedge fund but didn't manage it. However, Sassano's dealings with Atlantique -- whose main investment strategy was "mutual fund timing," according to its marketing literature -- went beyond those of a passive investor.

Sometime in 2001, Sassano contacted an upstate New York graphic artist about preparing marketing material for Atlantique. As recently as Friday, a page from a brochure for the hedge fund appeared on the Web site for the graphics firm, I:Disign. (To see the brochure, click the thumbnail to the right.)

Good Timing
Atlantique's Call to Arms
Click graphic for full-size version
Source: i:disign

Sassano also contacted a broker he knew at A.G. Edwards ( AGE) to place trades for Atlantique. A source said investigators from the NASD recently interviewed that broker about the trades and Sassano's referral. The broker, whom the source declined to identify to TheStreet.com, was released several weeks ago. A.G. Edwards declined to comment.

It wouldn't be the first time Sassano has referred market-timing business to a friend or colleague.

Massachusetts securities regulators, in a civil fraud complaint filed against five former Prudential Securities brokers, alleged that Sassano, while working at CIBC World Markets, referred two hedge funds interested in market-timing shares of mutual funds to Martin Druffner, a former broker in Prudential's Boston office. Druffner and Sassano were college friends, and in the mid-1990s both worked at Lehman Brothers ( LEH). (Prudential is jointly owned by Wachovia ( WB) and Prudential Financial ( PRU).)

Massachusetts regulators said the two hedge funds Sassano referred to Druffner were Head Start Advisors, a $760 million British fund, and Chronos Asset Management, a fund that received substantial financing from CIBC.

One thing that has put Sassano on the regulatory radar screen is the fact that he has crossed paths and been friends with several brokers implicated in the scandal, and had referred business to some of them. He worked at Lehman at the same time as Theodore Sihpol and Frederick O'Meally, according to broker records.

O'Meally was recently fired from Prudential's office in Garden City, and is the subject of a separate investigation by Spitzer and the Securities and Exchange Commission into allegations of market-timing. Sihpol, a former Bank of America ( BAC) broker, was one of the first individuals to be criminally charged in the mutual fund investigation.

A spokesman for the NASD declined to comment. Spitzer's office also had no comment on its investigation. Sassano's attorney, Ira Lee Sorkin, declined to comment. Sorkin previously told TheStreet.com Sassano "has not been charged with any wrongdoing, and he is cooperating fully with internal inquiries being conducted by his employer."

Oppenheimer officials did not return several phone calls. A spokesman for CIBC ( BCM), the parent company of CIBC World Markets, said the bank is cooperating with investigators. Earlier this year, CIBC sold its Oppenheimer brokerage business to brokerage Fahnestock, now operating under the Oppenheimer name.

Mark Arnold, the manager of Atlantique, said the fund is no longer active. He referred all other questions to his attorney, Paul Rooney, a former federal prosecutor who specializes in white-collar criminal defense. Rooney too declined to comment.

Despite the silence, the one-page marketing brochure for Atlantique displayed on the I:disign Web site tells a lot about the hedge fund.

The fund, in early 2002, projected a robust average monthly return of 4.6% based on its strategy of market-timing mutual fund shares. Even though the fund had no operating history, the brochure said those results were within reach "based on a trading model" the hedge fund had developed "with respect to mutual funds and other securities traded in the U.S."

The brochure also revealed that the hedge fund's main investment vehicle, Atlantique Capital Offshore Fund, was based in the Cayman Islands, a locale favored by many hedge fund managers for its tax policies.

CIBC, where Sassano was still working in 2002, also had a link to Atlantique. The brochure listed the official address for the investment fund as CIBC's office in the Cayman Islands.

A CIBC official declined to comment on the relationship between the bank and Atlantique. But sources speculate it might be akin to the one CIBC had with Chronos, for which it provided start-up financing.

It's important to note that no charges have been filed against Sassano, even though he's been identified by name in the Prudential complaint and has appeared on the radar screens of investigators. He remains on the job at Oppenheimer, even as Wall Street firms such as Bear Stearns ( BSC), Merrill Lynch ( MER) and UBS ( UBS) have fired dozens of brokers over the past few weeks.

To date, most of the prosecutions over market-timing have been aimed at fund managers who violated their company's policies and their fiduciary obligation to their investors by permitting big clients to engage in abusive trading. The only brokers who have run into trouble with regulators over market-timing is the group from Prudential, which allegedly used a deceptive scheme to help its customers place market-timing trades.

Legal experts say it's difficult for regulators to bring charges against a broker without some evidence of deception, because there's nothing illegal about helping a hedge fund engage in market-timing.