Report: SEC Investigation Insider Trading At Troubled Fund
WASHINGTON (AP) _ The Securities and Exchange Commission is investigating whether insider trading played a role in last month’s highly publicized downfall of a small Denver-based money market fund, a report said Monday.
The Wall Street Journal, citing unnamed sources, said the SEC is reviewing withdrawals from the Community Bankers U.S. Government Money Market Fund before it announced severe losses from derivatives dealings on Sept. 26.
The demise of the fund was significant since it was the first money fund to ″break the buck″ - have its net asset value fall below $1 a share - due to derivatives dealings.
The Community Bankers fund held about 43 percent of its assets in derivatives, which lost value when interest rates rose sharply earlier this year, the SEC has said. The agency, as part of its policy, would neither confirm nor deny the newspaper’s account.
A telephone call placed to executives of the Community Bankers fund in Denver wasn’t immediately returned. A receptionist said the fund didn’t have immediate comment on the report.
While there is no guarantee a money fund will hold its value at $1 a share, it’s a widespread industry practice to keep money fund shares above the $1 a share level in order to ensure investor confidence.
Derivatives are complex financial contracts that derive value from their link to an underlying security such as stocks, bonds or commodities.
The newspaper said the SEC is examining steady withdrawals from the fund in the four months leading up to its liquidation. The withdrawals peaked in the final month, the newspaper said.