SEC Front Running Probe:
The SEC is investigating at least 10 securities firms for leaking mutual fund stock-trading data to hedge fund clients and others. The examination, which, according to The New York Times, includes Merrill Lynch, Morgan Stanley, UBS and Deutsche Bank, is seeking to determine whether these firms and others tipped off favored clients about big mutual fund trades so that they could profit from moves in the prices of the stocks.
According to the Times piece, the SEC is looking into allegations that traders tipped favorite hedge funds about big trades. The hedge funds then made their own trades with a different brokerage firm so as to not arouse suspicion of insider trading. The time period the SEC is focusing on is the last two weeks of September. According to Morningstar mutual fund analyst Russel Kinnel, proving wrongdoing won't be easy. “The SEC will need to find not simply price movement but evidence that someone who knew about a trade was tipping someone, who, in turn bought or sold stocks before or during the trade,” wrote Kinnel in a story on Morningstar's Web site.
NASD Fines Bank of America:
The NASD fined Bank of America $3 million to settle charges it failed to follow anti-money laundering procedures in the handling of one family's accounts. The NASD did not identify the family. According to the NASD, the penalty is the largest imposed by a U.S. securities regulator for failing to comply with anti-money laundering rules. The NASD said Banc of America Securities failed to obtain required information for 34 high-risk accounts domiciled in the Isle of Man and apparently affiliated with one family. The accounts collectively held between $79 million and $93 million in assets and engaged in multimillion-dollar wire transfers across international boundaries.
At the time the accounts were opened in August 2003, BAI had established anti-money laundering procedures designed to address certain customer account risks by requiring additional information from the account holders, specifically, the names of the beneficial owners, before conducting substantial transactions in the accounts. However, from August 2003 to October 2004, BAI did not require the names of the beneficial owners and never restricted the activities in the accounts. “The anti-money laundering and terrorist financing laws are designed to ensure that customer and transaction risks are assessed and that firms take appropriate steps to address high risks,” said NASD Executive Vice President and Head of Enforcement James Shorris.