Late trading refers to an illegal practice in which after-hours trades are recorded as having been made before a mutual fund’s calculation of its current daily net asset value. The purpose of this is to take advantage of a price that was better prior to the new daily net asset value documentation.
This isn’t the same as after-hours trading, which occurs once the market has closed for the day. Instead, these trades are made after hours but recorded as occurring the previous day (when advantageous). For example, if the fund was $500 yesterday and $200 the following day, the trade being recorded for yesterday rather than after hours the same day would help save the investor $300.
Where is late trading most often seen?
In this kind of situation, there is usually a hedge fund that works with a mutual fund. The hedge fund sells the shares after hours, but the trades are recorded for the previous day at a lower or higher rate, depending on which is advantageous for the fund. The reason this is illegal is that not all investors have this option, and the hedge fund may unfairly be able to benefit from events that take place once the market closes.
Late trading can lead to serious accusations and white collar charges. Late trading violates several federal security laws including the Securities Exchange Act of 1934 and the Securities Act of 1933. Heavy fines are one possible penalty for late trading, as is imprisonment in some cases. Anyone who is under investigation for trading violations needs to quickly learn their rights and be ready to defend themselves.