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An investigation into the improper trading of mutual funds in the US has widened to include a number of mutual fund intermediaries, the institutions that match buyers and sellers in the market.

Eliot Spitzer, the New York attorney-general investigating the mutual fund industry, is expected to unveil more criminal cases involving brokerage firms and other financial groups that sell and distribute fund shares to individual customers.

The widening inquiry has already led to criminal charges against two people: Theodore Sihpol, a broker at Bank of America, and Steve Markovitz, a former trader at the hedge fund Millennium Partners. But it has also implicated at least eight companies, with subpoenas being issued to several dozen more, and has spawned more than 20 lawsuits.

Mr. Spitzer’s office is examining the transactions that took place between hedge funds engaged in improper mutual fund trading and their broker-dealers, including the use of complex derivatives. It is still not clear how these were used or whether they were illegal.

One type of derivative being scrutinized allowed hedge funds to profit from shorting shares in mutual funds. Bank of America arranged such a tool for Canary Capital Partners, according to Mr. Spitzer’s original complaint against the hedge fund. The use of “total return swaps” which allowed brokers to stretch hedge funds’ lending limits inappropriately to reap more fees, are also being studied, according to a person familiar with the investigation.

Acting as middlemen, brokerages and other intermediaries play a pivotal role in the distribution of funds since they offer customers the opportunity to buy into a variety of mutual funds from different families. They manage their clients’ accounts, serving as the principal point of contact for fund companies, which in many cases do not have much interaction with individual customers.

When Mr. Spitzer opened his investigation last month, he produced evidence showing that one such intermediary - Bank of America - helped Canary Capital Partners, engage in the “late trading” of mutual fund shares. That is an illegal practice, which Mr. Spitzer compares to betting on yesterday’s horse race today.

Bank of America installed equipment in Canary’s office that allowed the hedge fund to trade shares in mutual funds at the 4 p.m. closing price until 6.30 p.m. New York time. This is an advantage because investors buying after 4 p.m. are supposed to pay the next day’s price. In return, Canary agreed to park millions of dollars in the bank’s bond funds.

Mr. Spitzer subsequently filed grand larceny and securities fraud charges against Theodore Sihpol, a former BofA broker who had handled the bank’s business with Canary.

© The Financial Times Ltd 2013. "FT" and "Financial Times" are trademarks of the Financial Times.

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