For $153 million payment, securities fraud case settled

By PVT and THE ASSOCIATED PRESS
January 18, 2006

A former Las Vegas securities broker has agreed to pay $153 million to settle charges alleging he defrauded mutual fund investors through improper late trading and market timing, the Securities and Exchange Commission said Tuesday.

Under terms of the settlement, Daniel G. Calugar will relinquish $103 million in ill-gotten gains and pay a civil penalty of $50 million, the largest penalty regulators have imposed on an individual in a late trading and market timing case, SEC officials said.

Calugar, who now lives in Ponte Vedra Beach, Fla., has already paid $72 million to settle a separate class action lawsuit. The money will be used to compensate harmed investors, officials said.

Calugar, 51, agreed to the deal without admitting or denying the allegations. He also accepted a permanent ban on working for a brokerage firm as part of the deal.

The SEC complaint accuses Calugar and his former trader-broker Security Brokerage Inc., of using late trading and market timing schemes to bank $175 million dollars from 2001 to 2003.

"Daniel Calugar's late trading was phenomenally profitable to him and came at the expense of long-term mutual fund shareholders," Linda Chatman Thomsen, director of the SEC's enforcement division, said in a statement.

Calugar's attorney, Steve Scholes of Chicago, did not immediately return a call for comment.

The complaint says Calugar routinely traded mutual funds one or two hours after market closing without any legitimate reason. The funds were largely managed by New York-based Alliance Capital Management Holding LP and Massachusetts Financial Services, a division of Toronto-based Sun Life Financial, the complaint said. Regulators said Security Brokerage created false records to cover up the trades.

Regulators also alleged that from March 2001 to Sept. 2003 Calugar used rapid trading of Alliance and MFS funds to exploit changes in the market, even though those funds either prohibited or discouraged the practice.

The settlement must still be approved by a U.S District Court in Nevada.