Beverly Hills Firm Is Target of Probe

Raising the possibility of criminal charges, Beverly Hills-based JB Oxford Holdings Inc. said this week that federal prosecutors were investigating the firm’s role in the mutual fund trading scandals.

JB Oxford said in its annual report, released Tuesday, that the Justice Department’s Los Angeles office, along with the Securities and Exchange Commission and the New York attorney general’s office, was looking into “allegations that we improperly processed mutual fund trade orders.”

Company officials could not be reached for comment Wednesday.

JB Oxford operates a discount brokerage and also provides trade processing for other investment firms. It was named, but not charged, in New York Atty. Gen. Eliot Spitzer’s Sept. 3 complaint that exposed fund industry trading abuses.

That complaint centered on trading by the Canary Capital Partners hedge fund in recent years. For example, Spitzer said Canary had agreements to routinely trade in mutual fund shares after the 4 p.m. Eastern time close of regular trading each day, while still receiving that day’s final fund share prices. Such “late trading” is illegal under federal securities laws.

In its annual report, JB Oxford said it was cooperating with all three probes.

On Nov. 6, the firm disclosed that it had been notified of possible civil charges by the SEC’s office in Los Angeles. The firm said this week that it had met with the agency several times in an effort to settle that matter.

JB Oxford said in its filing that if charges were filed by any of the three agencies, it “could be subject to significant sanctions and penalties,” including revocation of its license as a broker-dealer.

In its harshest warning yet regarding the ongoing probes, the company, which lost $5.9 million last year, said its “deteriorating financial results” and the uncertainty of legal proceedings against it could end up endangering its viability as a “going concern.”

Meanwhile, Bear Stearns Cos., the seventh-biggest securities firm, faces federal criminal and civil probes into whether it helped Canary Capital Partners make illegal mutual fund trades, people familiar with the matter said.

According to Bloomberg News, Bear Stearns is being investigated by the SEC and the U.S. attorney for the Southern District of New York, the people said, speaking on condition of anonymity. At least eight brokers that Canary Capital used to execute trades at Bear Stearns and other firms are also being probed, the people said.