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Stockbroker Ordered to Disgorge $56K in Profits

(CN) - The 5th Circuit ordered a stockbroker to disgorge the profits he earned through market-timing trades, because he made "material misstatements" with the intent to deceive.

Scott B. Gann and co-worker George Fasciano traded mutual funds for Haidar Capital Management and Capital Advisor by timing the market.

Although market timing isn't illegal, many mutual funds block the practice, claiming market timers make short-term gains at the expense of long-term investors. These funds send "block notices" to brokers who make market-timing trades, prohibiting them from future trading.

To avoid triggering the block notices, Gann and Fasciano opened 21 accounts for nine HCM affiliates, all serving the same investors.

After receiving a block notice, Gann and Fasciano would switch their registered representative number and keep trading.

Over seven months, they completed 2,500 trades for a total value of $650 million and received 69 block notices.

Gann made $56,640 for his service to HCM.

The SEC charged Gann and Fasciano with violating securities law. Fasciano settled, but Gann went to trial. The district court ruled against him, finding that he made "material misstatements" with the intent to deceive.

The federal appeals court in New Orleans affirmed the $50,000 civil penalty, injunction and disgorgement order.

"Gann has not made a factual showing that so outweighs the evidence offered by the SEC as to demonstrate that the district court clearly erred," Judge Weiner wrote.

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