Mutual Fund Prosecutions May Shed Welcome Light on Martin Act Terms

March 29, 2004

In the months since the investigation of late trading and market timing in mutual funds first became public, the list of mutualfund companies, hedge funds, brokerage houses and individuals caught up in the scandal has grown to the point where keeping track requires a box score. While the whirlwind of headlines might lead the casual observer to conclude otherwise, the number of individuals currently charged with crimes related to mutualfund trades is actually quite small.

It remains to be seen whether this scandal will generate high-profile criminal trials similar to the insider trading prosecutions of the 1980s or the corporate executive fraud cases packing courtrooms today. Nonetheless, an examination of the bases for pending prosecutions of individuals and, in particular, the felony provisions of New York's MartinAct, General Business Law 352-c(5) and (6), is instructive as this scandal continues to unfold.