General American Life Insurance Company, a unit of MetLife will pay the SEC a civil penalty of $3.3 million, with former SVP William C. Thater paying civil penalties totaling $163,137. The fines stem from charges that Thater permitted and General American failed to prevent late trading of mutual funds underlying one of General American's variable insurance products. The money collected will be distributed among the affected funds.
The Securities and Exchange Commission today announced a settled enforcement action against General American Life Insurance Company and a former senior vice president, William C. Thater, for their roles in a late trading scheme. General American is a St. Louis-based insurance company and subsidiary of MetLife, Inc.
General American will pay a civil penalty of $3.3 million and Thater will pay disgorgement, prejudgment interest and civil penalties totaling $163,137 to settle charges that Thater permitted and General American failed to prevent late trading of mutual funds underlying one of General American's variable insurance products. The payments will be distributed to the affected funds. The Commission's order finds that Thater, 52, of Danbury, Conn., entered into a written agreement that gave a New York family exclusive late trading privileges in mutual funds underlying the private placement life insurance policies the family purchased from General American for approximately $20 million.
“By permitting a wealthy family to late trade, William Thater elevated the interests of a few select individuals over other investors,” said Linda Chatman Thomsen, Director of the Commission’s Division of Enforcement. “Whether it’s late trading of mutual funds directly or those that are part of variable insurance products, the Commission will continue to hold individuals and entities accountable for wrongful practices that unlawfully favor some investors over others.”
Merri Jo Gillette, Director of the Commission's Chicago Regional Office, said, "The Commission seeks to assure a level playing field for all investors, including investors in mutual funds. 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."
The Commission's Order finds that from Feb. 1, 2002, to Nov. 18, 2002, the New York family submitted, confirmed, or cancelled 79 mutual fund trade requests after 4 p.m. ET. As a result of the New York family's late trading, the value of the underlying mutual funds was diluted by approximately $3.3 million. Certain General American personnel became aware of the written agreement and the late trading activity, but failed to take adequate steps to investigate the activity and ensure that it ceased.
The Commission's Order requires in addition to the civil penalties that General American cease and desist from committing or causing violations of Sections 17(a)(2) and 17(a)(3) of the Securities Act of 1933 and Rule 22c-1 under the Investment Company Act, and comply with certain undertakings. The Order requires Thater to cease and desist from committing or causing violations of Sections 17(a)(1) and 17(a)(3) of the Securities Act of 1933, Section 10(b) of the Securities Exchange Act of 1934 and Rule 10b-5 thereunder and Rule 22c-1 under the Investment Company Act. The Order also requires Thater to pay disgorgement, prejudgment interest and civil penalties, and be barred from association with any broker, dealer or investment adviser with the right to reapply after three years. General American and Thater have consented to the Commission's Order, without admitting or denying the findings.
Stay ahead of the news ... Sign up for our email alerts now