Ritchie Capital to pay $40 million settlement
Ritchie Capital Management LLC founder Thane Ritchie and one of their hedge funds will pay almost $40 million to settle regulators' claims over their alleged roles in illegal late trading of mutual funds.
The Lisle firm made trades after the 4 p.m. close of markets from 2001 to 2003 through brokerages including Bear Stearns Securities Corp. and Banc of America Securities, New York Attorney General Andrew Cuomo and the Securities and Exchange Commission said in statements Tuesday. The trades, helped by after-hours information, allegedly made $30 million in profits for Ritchie's Multi-Strategy Global Trading Ltd. hedge fund.
"This agreement ensures that wrongdoers are held responsible, appropriate reforms are adopted, securities laws are honored and long-term investors are assured a level playing field," Cuomo said in his statement.
To help avoid detection, Ritchie Capital allegedly submitted orders to at least one firm before the 4 p.m. New York trading deadline and later called brokers to pick which ones it would carry out, the SEC said.
"The respondents' attempt to cover their tracks by using falsified order tickets merely underscores the egregiousness of the fraudulent scheme," Merri Jo Gillette, who heads the SEC's Chicago regional office, said in its statement.
Ritchie Capital, founded in 1997, is facing other legal matters. Two of its life-insurance funds filed for bankruptcy in June. In December, former investors in its Multi-Strategy Global LLC fund petitioned to force that one into bankruptcy as well, saying they are owed money. That fund fed money to the one involved in today's settlement, according to the SEC. Ritchie called the petition "unjustified and without merit" when it was filed, and is fighting it, court records show.
The firm, its founder and the hedge fund settled the SEC's complaint without admitting or denying wrongdoing, the agency said.
"We are pleased to put this matter behind us, and we will continue our other efforts to maximize value for all of our investors," Thane Ritchie said in a statement.
The company and the fund must forfeit $30 million in profits, plus $7.4 million in interest, according to the SEC. The regulator jointly fined the founder and the firm $2.5 million. The SEC also imposed a $250,000 fine against Warren DeMaio, an employee who supervised the mutual-fund trading and allegedly helped develop the strategy. He also didn't admit or deny wrongdoing. His attorneys didn't return calls seeking comment.