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November 23, 2006

New York Attorney General Eliot Spitzer Sues Hedge Fund

posted by MR WAVETHEORY at 11/23/2006 05:58:00 AM
The financial community's favorite crime fighter, Eliot Spitzer, is at it again. This time Spitzer is going after hedge fund Samaritan Asset Management for market timing.

Spitzer began investigating Samaritan Asset Management in 2003 as part of a wider market timing probe.

Though not illegal, market timing, trading to exploit short-term price difference, is prohibited in a mutual fund because of its detriment to long-term shareholder value.

A high-profile example of market timing occurred when hedge fund Canary Capital traded in and out of the Strong Financial mutual fund complex in an agreement with Strong Financial founder Richard Strong, who was barred from the investment industry in 2003 as a result of his role in market timing his own fund company.

Along with Samaritan Asset Management, Spitzer in his 2003 subpoena named Haidar Capital and Trout Trading Fund for engaging in market timing. The lawsuit alleged Samaritan Asset Management "piggybacked" trading on mutual-fund clientele of retirement plan provider Security Trust Co. The hedge fund and Johnson Capital engaged in "flying under the radar" to skirt monitoring. Johnson Capital and STC, according to the complaint, varied the trading to avoid mutual fund monitoring.

Management at Arizona-based STC has already admitted complicity in the market timing scheme.

As New York Attorney General, Spitzer has become known for prosecuting white-collar crime in the financial industry in particular. He was elected governor of New York Nov. 7.

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