Geoffrey Brod, former hedge fund manager for Aeltus Investment Management, LLC (now known as ING Investment Management Co.). From 1999 to 2003, Brod engaged in active personal short-term trading in public company stocks, including stocks of companies held or to be acquired by mutual funds under his management. Brod executed about 3,500 personal trades during this period.
Brod’s actions violated Section 17(j) of the Investment Company Act which prohibits persons affiliated with a registered investment company from engaging in any acts, practices or courses of business in connection with the purchase or sale of a security held or to be acquired by the fund that violate the Commissions’ rules adopted to prevent fraud. Rule 17j-1(b) (formerly Rule 17j1-(a)) makes it unlawful for persons affiliated with a Fund to, among other things, engage in any fraud or deceit in connection with the purchase or sale of a security held or to be acquired by a fund. Rule 17j-1(d) further requires that persons employed by an investment adviser who have access to a fund’s portfolio must timely submit reports regarding personal security trading.
Aeltus’ Code of Ethics (i) required pre-clearance of all personal trades, (ii) prohibited “Frequent Securities Transactions”, (iii) prohibited short-term trading and required a holding period of 60 days to avoid conflicts of interest, (iv) required quarterly and annual reporting of all transactions and holdings, and (v) required annual certification of compliance with the code.
Brod failed to acquire pre-clearance and engaged in several short term trades. Many of the completed trades involved him holding the securities from 2-7 days. Brod also failed to disclose the trades in his quarterly and annual reports.
The SEC accepted Brod’s settlement offer. Brod will pay disgorgement of $63,892.67, prejudgment interest of $11,107.33, and a civil money penalty in the amount of $100,000.00.
To read the complete SEC decision, click here.