Financial Times- Zurich Financial Services agreed Monday to pay $16.8m to settle allegations that its New York-based capital markets arm provided funding to four hedge funds that engaged in impropermarket timing of mutual funds.
The US Securities and Exchange Commission, which brought the case against the Swiss-based insurance giant, said that the group’s Zurich Capital Markets (ZCM) subsidiary provided financing to the hedge funds and helped facilitate improper trading from 1999 to 2003.
Many mutual funds prohibit rapid turnover trading as it can increase transaction costs and siphon profits from long-term investors.
Zurich helped the hedge funds evade the mutual funds’ “timing police” by setting up special-purpose vehicles that allowed the hedge funds to trade under disguised identities, the SEC said. “Theytook affirmative steps to help [the hedge funds]. They are enabling this sort of behaviour,” said Kay Lackey, assistant SEC regional director, who said the case was part of the SEC’s larger effort topolice intermediaries who facilitate improper trading and other wrong behaviour.
Zurich did not admit or deny wrongdoing but it will pay a $4m penalty and return $12.8m in profits it earned from its relationship with the hedge funds. The money will go to investors in the mutual funds where the market timing took place.
