Geek Securities Accused of Fund Trading Abuses

Florida investment firm Geek Securities Inc., its owner and one of its brokers are the latest to be charged with mutual fund trading abuses.

The Securities and Exchange Commission filed fraud charges Monday against Geek Securities and its advisory arm, along with owner Kautilya “Tony” Sharma, 39, of Delray Beach, Fla., and broker Neal Wadhwa, 27, of Fort Lauderdale, Fla.

The SEC’s civil lawsuit, filed in U.S. District Court in West Palm Beach, Fla., claims that Geek, Sharma and Wadhwa engaged in “pervasive market timing and late trading” in mutual funds on behalf of institutional investors, including several hedge funds. Regulators allege that the abusive trading took place for more than two years, starting in 2001.

Market timing refers to the frequent buying and selling of mutual fund shares to exploit price discrepancies in securities held by the fund. Late trading refers to buying or selling mutual fund shares after financial markets have closed but getting that day’s closing price.

The SEC said Geek accepted trades from customers after the market closed at 4 p.m. but used a time-stamp machine that showed the orders had been received before 4 p.m., qualifying them for that day’s price.

New York Atty. Gen. Eliot Spitzer, who began a far-reaching probe of trading abuses in the $7.5-trillion mutual fund industry last fall, has compared late trading in funds to betting on a race after the horses have crossed the finish line.

The SEC also alleged that Geek engaged in market timing. Though market timing isn’t illegal, many fund firms say they discourage it because it can raise fees and reduce performance for long-term fund investors.

David Garvin, an attorney for Geek Securities and Sharma, wasn’t available to comment. Wadhwa’s attorney, Neil Bartiz, had no immediate comment.