group of RRs permitted to engage in the market timing business. At various times thereafter, World Markets’ management reprimanded other RRs trying to market time on behalf of their customers, noting such behavior was the exclusive purview of Broker Doe and his team.
Additionally, after a mutual fund had blocked a particular customer account
because it was engaged in market timing, Broker Doe and his team of RRs opened additional accounts for the customer to disguise the identity of the account holder so that the customer
could continue to market time that same fund. For example, between November 13, 2001 and November 27, 2001, Broker Doe and his team of RRs timed one mutual fund through two brokerage accounts for the same customer. On November 28, 2001, the mutual fund contacted
World Markets to block those accounts due to “a pattern of excessive trading.” To evade those trading restrictions, between December 4, 2001 and December 6, 2001, Broker Doe and his team of RRs timed the same mutual fund in eight different accounts for the same customer. On December 7, 2001, the fund blocked those eight accounts, again due to “excessive trading.” Finally, to evade the November and December blocks, on December 14, 2001, Broker Doe and his team of RRs traded the mutual fund in two more accounts for the same customer, which led
the mutual fund to ultimately block these two new accounts from further trading as well.
Broker Doe’s team also used multiple RR numbers to deceive mutual funds about
the source of market timing trades. Mutual funds often identified abusive market timing through the RRs who facilitated this trading. Using alternative RR numbers allowed the RRs to “disguise” their identity and fool the mutual funds into believing that the fund had not previously blocked the RR, and his customers, from abusive trading. This became increasingly important as Broker Doe’s team’s business grew and mutual funds began to identify their RR numbers as the
source of abusive trading. All told, Broker Doe and his group had over 50 individual or shared RR numbers at World Markets.
Broker Doe also traded in small dollar amounts to stay “under the radar screen” of
the mutual funds. Broker Doe opened multiple accounts for his timing customers in order to spread timing money across multiple accounts, instead of trading one large lump sum, which would surely be a “red flag” to mutual funds.
World Markets Mutual Fund Operations Department was well aware that Broker
Doe’s team used multiple accounts as a deceptive device. For example, one RR wrote to the Mutual Fund Operations Department concerning identical trades in multiple customer accounts. Apologizing for the increased work these trades were causing the Mutual Fund Operations Department, the RR wrote, “We obviously aren’t purposefully trying to create more work for you
guys by splitting these trades up. We are trying to break them up so the fund companies do not think these are market timing accounts, even though they are.” The Director of Mutual Fund Operations replied, “I understand your methods.”
Similarly, World Markets’ Head of Private Client Services knew that Broker Doe’s
team used multiple accounts to deceive mutual funds. In June 2002, one RR emailed the Head of Private Client Services asking for a lower margin rate for a customer, explaining, “[t]here are three accounts (even though it is the same customer) that add up to approx. $4,300,000. The reason they