The SEC's administrative order finds that Markovitz committed securities fraud. In partial settlement of that action, Markovitz has agreed to a lifetime bar from association with an investment adviser or mutual fund.
According to the criminal charges and the SEC findings, Markovitz engaged in "late" trading of mutual fund shares on behalf of Millennium, one of the nation's largest hedge fund operators, with more than $4 billion under management. With the assistance of certain registered broker-dealers, Markovitz placed mutual fund orders after 4:00 p.m. ET, but obtained the prices that had been set as of 4:00 p.m. ET. By SEC rule, Markovitz's post-4:00 p.m. orders should have received the prices set on the following day. This illegal trading allowed Millenium to take advantage of events that occurred after the markets closed.
The SEC's administrative order finds that Markovitz willfully violated Section 17(a) of the Securities Act of 1933, Section 10(b) of the Securities Exchange Act of 1934 and Rule 10b-5 thereunder, and willfully aided and abetted and caused violations of Rule 22c-1 promulgated under Section 22(c) of the Investment Company Act of 1940. Without admitting or denying the SEC's findings, Markovitz consented to cease and desist from violations of those provisions, and to be permanently barred from associating with an investment adviser or from working in any capacity with or for a registered investment company. The SEC also is seeking disgorgement and civil penalties in amounts to be determined later.
Attorney General Spitzer said: "This guilty plea is a clear step forward in the investigation and prosecution of wrongdoing in the mutual fund industry. Working with the SEC, my office will continue to pursue this matter aggressively."
Stephen M. Cutler, Director of the SEC's Division of Enforcement, said: "I am pleased that once again close cooperation between the Commission and Attorney General Spitzer has resulted in expeditious and aggressive action on behalf of investors. We will continue to pursue abusive trading practices involving mutual funds to ensure that investors are treated fairly."
Spitzer and the SEC last month announced parallel criminal and civil charges against an official at Bank of America for unlawful trading of mutual funds. Earlier last month, Spitzer's office obtained a settlement and cooperation agreement with Edward Stern, principal of another leading hedge fund, Canary Capital Partners, LLC.
The investigation resulting in today's conviction was led by Assistant Attorney General Kevin Suttlehan of the Criminal Prosecutions Bureau with Charles Caliendo of the Investor Protection Bureau under the supervision of Criminal Prosecutions Bureau Chief Janet Cohn.
The SEC's civil investigation is being overseen by Wayne M. Carlin and Mark K. Schonfeld of the SEC's Northeast Regional Office.The investigations are continuing.
