All In the Family

Federal regulators sued a Queens-based hedge fund manager, Robert A. Simpson, accusing him of cheating shareholders of hundreds of mutual funds of $57 million by making thousands of illegal late trades earlier this decade.

Where did Simpson and his head trader, Jack Dowling, learn their craft? From none other than Edward J. Stern of Canary Capital Partners, the hedge fund whose illegal trading kicked off the entire late-trading scandal in 2003. Stern and Simpson are brothers-in-law.

According to the Securities and Exchange Commission's complaint, filed Wednesday in U.S. District Court in Manhattan, Simpson Capital pressured brokerages to let it buy and sell mutual funds at the daily closing price but after regular trading hours.

That allowed the firm to factor in after-hours earnings statements, executive turnover, and other events that would affect the funds' value on the next trading day.

The S.E.C. is seeking to strip Simpson and Dowling of what it contends are ill-gotten gains from the practice. It figures that Simpson personally earned at least $19 million in fees and profits, and that Dowling received more than $996,000 in salary and bonuses.

Alan Levine, a lawyer representing Simpson and the company, said his clients were innocent. Dowling's lawyer was not immediately available for comment.

by Mark Stein