The U.S. Securities and Exchange Commission today announced yet another mutual fund market timing settlement.

The SEC reported that Daniel Calugar and his former registered broker-dealer, Security Brokerage Inc., agreed to settle the SEC’s charges alleging that they defrauded mutual fund investors through improper late trading and market timing. As part of the settlement, Calugar will disgorge US$103 million in ill-gotten gains and pay a civil penalty of US$50 million.

Calugar and SBI consented to the entry of a final judgment in the SEC’s civil litigation pending against them in the United States District Court for the District of Nevada. The final judgment, which is subject to approval by the Honorable Robert Jones, permanently enjoins Calugar and SBI from future violations of the antifraud provisions of the federal securities laws and orders Calugar to pay a total of US$153 million in disgorgement and penalties. Calugar also consented to the issuance of an SEC order, based on the entry of the injunction in the federal court action, that will permanently bar him from association with any broker or dealer.

SBI ceased to be a registered broker-dealer in November 2003. Calugar and SBI consented to the final judgment and SEC order without admitting or denying the allegations.

Linda Chatman Thomsen, director of the SEC’s Division of Enforcement, said, “Daniel Calugar’s late trading was phenomenally profitable to him and came at the expense of long-term mutual fund shareholders. The magnitude of this settlement reflects both the seriousness of the wrongdoing and the commission’s resolve to hold accountable those who defraud mutual fund shareholders.”

In addition to US$72 million that Calugar previously paid in settlement of a class action lawsuit, the US$103 million that he has agreed to pay in settlement of the SEC’s action has been placed in an escrow account which the commission will seek to have distributed to harmed investors. The total of US$175 million represents the trading profits that the SEC alleged that Calugar received. In addition, the commission will also seek to have the US$50 million penalty distributed to victims of the violations.

In December 2003, the SEC filed an emergency action in federal court seeking an asset freeze, preliminary injunction, and other relief against Calugar and SBI. The SEC’s complaint alleges that from at least 2001 to 2003, Calugar reaped profits of approximately US$175 million through improper late trading and market timing, principally through mutual funds managed by Alliance Capital Management and Massachusetts Financial Services.

The SEC’s complaint further alleges that from at least March 2001 to September 2003, the defendants engaged in extensive market timing of Alliance and MFS funds despite knowing that the prospectuses for those funds either prohibited or discouraged timing and that timing was not available to most investors. In the case of Alliance, Calugar agreed to make long-term investments in Alliance hedge funds in exchange for Alliance permitting him to engage in market timing in its mutual funds. Calugar was the single largest timer at Alliance during the relevant period, according to the complaint.