Tuesday, July 7, 2009

Fund Pays SEC $17.8 Million To Settle Market Timing Scheme

July 7, 2009

The SEC claims Headstart Advisers LTD., which had at least $500 million in funds at its height, would trade mutual funds after the market closed but still receive the current day's net asset value, profiting on post-market events. The trades in question, took place between September 1998-September 2003. The scheme entailed engaging in late trading through Headstart's accounts at two broker-dealers. The commission alleges the fund earned about $198 million through the process.

As for its part in the scheme, Chief Investment Officer Najy Nasser, who was personally fined $600,000 commented, "Headstart is very pleased to have reached a settlement." He added, " We responded to U.S. concerns about market timing and immediately ceased this element of Headstart's business in September 2003." Given the CFO's statement, it is somewhat ironic that Headstart is neither admitting nor denying the allegations.

In total Headstart Advisers Ltd., its chief investment officer and the hedge fund itself will pay $17.8 million. Although Headstart Fund is now defunct, the adviser said the settlement will allow them to concentrate on its business as an investment adviser to offshore hedge funds and expand the core business with the launch of new funds.

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