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NEWARK – The New Jersey
Bureau of Securities has revoked the registrations
of three broker-dealers and permanently barred
each from working in the securities industry
after finding each had engaged in market timing
of trades in mutual funds in violation of
New Jersey’s Securities Laws.
In addition, Christopher Chung,
Kevin Brunnock and William Savino will collectively
pay $1.15 million in civil penalties, under
terms of an administrative consent order.
The firms that employed these
three individuals, UBS Financial Services
and Merrill Lynch, previously paid the Bureau
of Securities $24.75 million and $10 million
in penalties respectively for failure to properly
supervise them.
“We’re holding
both the employers and their employees accountable
when securities laws are broken and professional
standards of conduct are violated,”
Attorney General Anne Milgram said. “The
hard-earned money of investors was put at
unnecessary risk by the illegal actions of
these individuals.”
Market timing involves making
frequent trades into and out of mutual funds
to take advantage of market fluctuations.
Most funds have policies against market timing,
which harms long-term investors by (1) allowing
the market timer to siphon off short-term
profits and dilute the value of the fund,
(2) increasing transactional costs of the
fund, and (3) making the fund more difficult
to manage.
“Market timing hurts
all mutual fund investors. Market timers seek
to only profit themselves, at the cost of
all other investors in the mutual fund,”
said Amy Kopleton, Acting Chief of the Bureau
of Securities.
While employed at UBS Financial
Services in 2001, Chung and Savino worked
as a team to provide investment services to
hedge fund Millennium Partners, L.P., with
Brunnock later joining them.
The three men engaged in market
timing and tried to hide their trading activities.
Even after their market timing trades were
discovered, with at least 150 stop letters
issued from mutual funds and nearly 1,000
attempted trades rejected, Chung, Brunnock
and Savino continued to engage in market timing.
They used multiple accounts, financial advisor
numbers and office branch codes in deliberate
attempts to conceal their activities.
Chung, Brunnock and Savino
left UBS Financial Services and went to work
at Merrill Lynch in 2002, bringing the Millennium
account with them. They continued to engage
in market timing and again attempted to hide
their activities. They also avoided paying
charges that mutual funds assess on shares
held for short periods of time by transferring
shares between accounts before selling the
shares.
Deputy Attorneys General Megan
Harris, Anna Lascurain, Victoria Manning and
Joshua Rabinowitz represented the state in
this matter. The investigation was conducted
by former Bureau of Securities’ investigator
Richard Barry.
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