The Securities and Exchange Commission (SEC) is certainly sticking to its promise on being tougher on offenders this year. This morning, the SEC announced that a settled enforcement action had been placed against MetLife subsidiary General American Life Insurance Company (GALIC) and former GALIC senior vice president William Thater for their roles in a late trading scheme back in 2002.
According to the announcement, Thater entered into a written agreement that gave a New York family – no name was mentioned in the article – exclusive late trading privileges in mutual funds supporting the private placement life insurance policies this family previously purchased from GALIC for approximately $20 million. As a result, the value of these mutual funds was reportedly diluted by approximately $3.3 million.
Unfortunately, these activities persisted from February to November of 2002, giving time for the unnamed family to submit, confirm, and cancel 79 separate mutual fund trade requests, which lead to the aforementioned fund dilution. Even worse, SEC’s director of the Chicago Regional Office, Merri Jo Gillette, said that “certain General American personnel” were aware of both the agreement and the late trading activity, but never investigated the activity.
“The commission seeks to assure a level playing field for all investors, including investors in mutual funds,” Gillette said. “William Thater intentionally facilitated a late trading scheme and General American turned a blind eye to red flags, ignoring the interests of mutual fund investors who were harmed by this illegal conduct.”
Thankfully, the scheme has now come to light. General American has been ordered to pay a civil penalty of $3.3 million for its part in the trading scheme; Thater will have to pay disgorgement, prejudgment interest and civil penalties amounting to $163,137.
“By permitting a wealthy family to late trade, William Thater elevated the interests of a few select individuals over other investors,” Linda Chatman Thomson, director of the SEC’s Division of Enforcement, said in the statement. “Whether it’s late trading of mutual funds directly or those that are part of variable insurance products, the commission will continue to hold those individuals and entities accountable for wrongful practices that unlawfully favor some investors over others.”
Representatives from MetLife would not return phone calls.
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