SEC Displays Enforcement Commitment in Leveling Record Penalty
Daniel Calugar, a former Las Vegas stock trader, settled with the SEC regarding charges involving market timing and late trading of mutual funds. The settlement will require him to pay a record $153 million in penalties.
The payments include fines of $50 million and $103 million, which he must turn over as restitution for his of ill-gotten gains. The SEC reported the fine as “the largest amount thus far imposed by the Commission on an individual in a late trading or market timing case.” The SEC alleges Calugar executed the offenses while he owned Securities Brokerage in Las Vegas.
The civil penalties top those of the previous record-holder, fallen mutual fund star Richard Strong, who headed up Strong Capital Management in Menomonee Falls, Wis. He settled market timing charges in 2004 for $30 million in civil penalties, out of a total penalty of $60 million. Two former mutual fund advisors, who settled their charges that same year, share the third spot. Gary Pilgrim and Harold Baxter, who ran Pilgrim Baxter & Associates in Philadelphia, each paid $20 million in fines out of total penalties of $80 million each.
The record-setting penalties leveled by the SEC over the last couple of years serves as a warning to Wall Street that the government is taking an increasingly dim view of anyone engaged in deceptive practices.
“We start with slap on wrist, then it’s a punch, then a fine, then disbarment, or both,” says Peter Pfeffer, a partner at Walsh Pfeffer & Co. in Mundelein, Ill. “The SEC is doing what it takes to get these folks’ attention. They’re asking, ‘How many times do you folks have to be fined?’”
Karen Matteson, senior trial counsel for the SEC, says Calugar’s case is more severe in that it deals with late trading, which is illegal, in addition to market timing. Calugar set up a self-clearing broker/dealer as a vehicle for his own trades, which he made after the market closed—more than 18,000 times from 2001 to 2003. Thus, according to the SEC, he was able to act on news after 4 p.m., before other investors who could only do so when the market opened the next day.
Calugar has also agreed to a permanent disbarment from the securities industry: He cannot associate with any broker or dealer. His firm has also lost its registration three years ago.
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