New York, Oct 04: Merrill Lynch & Co. fired three brokers who helped millennium partners make improper trades in mutual funds that gave the hedge fund advantage over other investors, a source close to the company has said.
The move comes a day after former millennium trader Steve Markovitz, 41, pleaded guilty to illegal late trading of mutual funds, which allowed the fund to buy in at 4 pm prices well after the market closed.
However, the source, who spoke on condition of anonymity yesterday, said the Merrill Lynch brokers fired didn't engage in any illegal after-market trading. Instead, the brokers violated Merrill Lynch's short-term fund trading policy by taking advantage of trading gaps caused by time differences in world markets, the source said.
A Merrill Lynch spokesman would not comment.
New York Attorney General Eliot Spitzer is probing the mutual fund industry, and Markovitz was the second mutual fund trader charged with wrongdoing. Last month, Spitzer charged former bank of America broker Theodore Sihpol III, with larceny and securities law violations for helping Canary Capital Partners LLC obtain its after-hours mutual fund trades.
Under Securities and Exchange Commission rules, trades made after 4 pm eastern time must be executed at the next day's closing price. Flouting the rules allowed the hedge funds to make money on after-hours developments, at the expense of the funds other shareholders.
Last month, hedge fund canary and its managers agreed to pay $30 million in restitution for profits generated from unlawful trading and a $10 million penalty.
Bureau Report