Timing Is Everything in New S.E.C. Case

Lewis Chester knew it was coming for quite a while. His British hedge fund, Pentagon Capital Management, actually issued a press release last month to rebut it.

Finally, today, the Securities and Exchange Commission ended his suspense and filed a civil suit accusing Chester and his London-based firm of fraud in the latest chapter of the market-timing scandal.

The S.E.C. accused Chester and Pentagon of having "orchestrated a scheme to defraud mutual funds in the United States and their shareholders through late trading and deceptive market timing."

The commission asserts that Chester and Pentagon took about $62 million in "illicit profits" by persuading mutual fund managers to sell him units in their funds at the previous day's price. This let him benefit from using the latest news to virtually assure himself profits. Those gains, the S.E.C. asserts, came "at the expense of U.S. mutual funds and their shareholders."

Even when mutual fund managers realized what he was doing and ordered him to stop, Chester would continue to late-trade by using a different account, the S.E.C. contends.

Chester, a friend and supporter of Conservative Party leader David Cameron, has said he will wind down his hedge funds in order to focus on fighting the S.E.C.'s allegations. He dismissed them as erroneous.

In its pre-emptive press release last month, the firm said: "Pentagon and Lewis Chester believe there are substantial factual and legal defenses to any civil action that the S.E.C. may bring and intend to vigorously fight the action."

by Mark Stein