Joseph John VanCook, Exchange Act Rel. 61039, November 20, 2009
Time since appeal filed: 1 year 3 months 30 days
Time since last brief: 11 months 17 days
VanCook appeals the ALJ's decision that he violated the anti-fraud provisions of Exchange Act Section 10(b) by orchestrating a scheme to allow his clients to late trade mutual fund shares. The ALJ also found that VanCook aided and abetted violations of various books and records provisions by his firm. The Commission upheld the finding of violations. It barred him from broker-dealer association, entered a cease and desist order, ordered disgorgement of $533,000 plus prejudgment interest, and imposed a $100,000 penalty.
As the Commission explained, mutual fund orders are submitted throughout the trading day and mutual funds generally calculate their net asset value (NAV) after the markets close at a time disclosed in their prospectus. Orders submitted by the 4 p.m. (Eastern time) market close are executed at the NAV for that day. The funds involved here indicated that orders had to be actually received by the intermediary (VanCook's firm) by 4 p.m. to be eligible for execution at the NAV for that day.
Late trading is the practice of permitting orders received after 4 p.m. to receive the NAV calculated as of the 4 p.m close instead of the NAV calculated after the close the next day. This fraudulent practice allows a trader to profit from market events that occur after 4 p.m. and are not reflected in the NAV for the current day. It harms innocent fund shareholders by diluting the value of their investments.
The Commission rejected VanCook's claim he was unable to pay disgorgement or a penalty. The Commission does not automatically waive these payments. Here, it found that VanCook had a substantial net worth. It also found his conduct so egregious that it would not be appropriate to waive monetary sanctions.
The Commission offered no explanation for why this one had been sitting in the inventory for so long. The issues were neither novel nor complex.