The Wall Street Journal-20080206-Ritchie Capital Settles Late-Trading Case- Once-Highflying Fund Agrees to Pay --36-40 Million- -Falsified Order Tickets-
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Ritchie Capital Settles Late-Trading Case; Once-Highflying Fund Agrees to Pay $40 Million; 'Falsified Order Tickets'
Full Text (387 words)Ritchie Capital Management LLC, a Chicago-based hedge-fund firm, agreed to pay about $40 million to settle accusations related to an illegal scheme to trade mutual funds after the close of trading.
The Securities and Exchange Commission and the New York Attorney General alleged that a Ritchie fund, its investment adviser, and its founder and chief executive all engaged in the practice. Late trading occurs when an investor buys or sells a mutual fund after the 4 p.m. close of stock-market trading -- but still receives the 4 p.m. price for the fund.
Late trading of mutual-fund shares can enable the investor to profit from news that emerges after the close of the stock market.
Ritchie "concealed its late trading by receiving pre-4 p.m. time- stamps on its order tickets," said Merri Joe Gillette, director of the SEC's Chicago regional office. "The respondents' attempt to cover their tracks by using falsified order tickets merely underscores the egregiousness of the fraudulent scheme."
The SEC said Ritchie Capital engaged in late trading from January 2001 through September 2003, placing "thousands of late trades in mutual-fund shares" and profiting by using post-4 p.m. news and market information, scoring $30 million of profits. Thane Ritchie, Ritchie's founder and CEO, approved of the late trading, according to the SEC's settlement agreement.
The settlement is an outgrowth of the larger investigation, initiated in 2003, by then-New York Attorney General Eliot Spitzer into improper trading of mutual funds. (Mr. Spitzer is now New York's governor.)
Mr. Ritchie said "we are pleased to put this matter behind us." Under the settlement, neither the Ritchie fund nor the investment manager admitted or denied the findings.
Ritchie, once a highflying fund, was founded by Mr. Ritchie, a former college football star, in 1998. Performance suffered in recent years, and Ritchie fended off a revolt by investors objecting to its 2005 move to shift a large portion of its holdings into so-called side-pocket accounts, among other issues. Side-pocket accounts are used to hold hard-to-value assets and limit investors' ability to withdraw money.
Last month, investors in a failed hedge fund run by Ritchie filed an involuntary Chapter 11 petition with the U.S. Bankruptcy Court in Chicago, trying to force the fund into bankruptcy protection and asking the court to investigate possible mismanagement and fraud. Ritchie has rejected the charges.
