SEC v. JB Oxford Holdings, Inc.; National Clearing Corporation; James G. Lewis; Kraig L. Kibble; and James Y. Lin, Central District of California — Complaint

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KAREN MATTESON, Cal. Bar No. 102103
MICHELE WEIN LAYNE, Cal. Bar No. 118395
LORRAINE B. ECHAVARRIA, Cal. Bar No. 191860
JESSICA RIGLEY MARREN, Cal. Bar No. 208074
Attorneys for Plaintiff
Securities and Exchange Commission
Randall R. Lee, Regional Director
Sandra J. Harris, Associate Regional Director
5670 Wilshire Boulevard, 11th Floor
Los Angeles, California 90036-3648
Telephone:(323) 965-3998
Facsimile:(323) 965-3908
UNITED STATES DISTRICT COURT
FOR THE CENTRAL DISTRICT OF CALIFORNIA
SECURITIES AND EXCHANGE
COMMISSION,
Plaintiff,
v.
JB OXFORD HOLDINGS, INC.,
NATIONAL CLEARING
CORPORATION, JAMES G. LEWIS,
KRAIG L. KIBBLE, and JAMES Y. LIN,
Defendants.
Case No.
COMPLAINT FOR
VIOLATIONS OF THE
FEDERAL SECURITIES LAWS
Plaintiff Securities and Exchange Commission (“Commission”) alleges as
follows:
JURISDICTION AND VENUE   
1.This Court has jurisdiction over this action pursuant to Sections
20(b), 20(d)(1) and 22(a) of the Securities Act of 1933 (“Securities Act”), 15
U.S.C. §§ 77t(b), 77t(d)(1) & 77v(a); Sections 21(d)(1), 21(d)(3)(A), 21(e) and 27
of the Securities Exchange Act of 1934 (“Exchange Act”), 15 U.S.C. §§ 78u(d)(1),
78u(d)(3)(A), 78u(e) & 78aa; and Sections 42(d), 42(e)(1) and 44 of the
Investment Company Act of 1940 (“Investment Company Act”), 15 U.S.C. 

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§§ 80a-41(d), 80a-41(e)(1) & 80a-43.  Defendants have, directly or indirectly,
made use of the means or instrumentalities of interstate commerce, of the mails, or
of the facilities of a national securities exchange in connection with the
transactions, acts, practices, and courses of business alleged in this Complaint.  
2.Venue is proper in this district pursuant to Section 22(a) of the
Securities Act, 15 U.S.C. § 77v(a), Section 27 of the Exchange Act, 15 U.S.C.     
§ 78aa, and Section 44 of the Investment Company Act, 15 U.S.C. § 80a-43,
because certain of the transactions, acts, practices, and courses of conduct
constituting violations of the federal securities laws occurred within this district,
and because each of the defendants may be found, is an inhabitant of or transacts
business in this district. 
SUMMARY
3.This action concerns the facilitation of fraudulent late trading and
market timing by a registered broker-dealer, its parent company, and three senior
executives.  From June 2002 until September 2003, the defendants facilitated over
12,000 late trades by select institutional customers in over 600 mutual funds. 
“Late trading” refers to the practice of placing orders to buy or sell mutual fund
shares after 4:00 p.m. Eastern time, the time as of which mutual funds typically
calculate their net asset value (“NAV”), but receiving the price based on the NAV
already determined as of 4:00 p.m.  Late trading enables the trader to profit from
market events that occur after 4:00 p.m. but that are not reflected in that day’s
price.  
4.The defendants also deceived the mutual funds by engaging in
deceptive tactics to conceal their customers’ impermissible market timing
activities from the mutual funds.  “Market timing” includes (a) frequent buying
and selling of shares of the same mutual fund or (b) buying or selling mutual fund
shares in order to exploit inefficiencies in mutual fund pricing.  Market timing,
while not illegal per se, can harm other mutual fund shareholders because it can

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dilute the value of their shares, if the market timer is exploiting pricing
inefficiencies, or disrupt the management of the mutual fund’s investment
portfolio and cause the targeted mutual fund to incur costs borne by other
shareholders to accommodate frequent buying and selling of shares by the market
timer. 
5.Through its participation in the fraudulent late trading and market
timing schemes, defendant National Clearing Corporation (“NCC”) realized
almost $1 million in proceeds from compensation arrangements with its
institutional customers who engaged in late trading and market timing and allowed
those customers to reap at least $8 million in profits at the expense of long-term
mutual fund shareholders.  NCC’s parent company, defendant JB Oxford
Holdings, Inc. (“JBOH”), prepared its financial statements that were included in
its Forms 10-Q for the second quarter of 2002 through the third quarter of 2003
and its 2002 and 2003 Forms 10-K on a consolidated basis, thus reporting as
revenue the profits that NCC obtained from its late trading and market timing
activities.  
6.The agreements by which NCC enabled its customers to engage in
late trading were negotiated by defendant James G. Lewis, a member of JBOH’s
board of directors, JBOH’s president and chief operating officer and NCC’s
president and CEO, and by NCC’s vice president of correspondent services,
defendant James Y. Lin.  Defendant Kraig L. Kibble, who was NCC’s director of
operations, transmitted and approved transmittal of late trades to the mutual funds. 
With Lewis’ knowledge, Lin and Kibble engaged in various fraudulent practices
designed to conceal from the mutual funds the market timing of their shares by
NCC’s customers, including opening multiple customer accounts for the same
customer with different account numbers and using multiple representative codes
(identifying the originating broker) and office codes (identifying where the trade
originated) when transmitting orders.

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7.By engaging in the conduct described in this Complaint, each
defendant violated the antifraud provisions of Section 17(a) of the Securities Act
and Section 10(b) of the Exchange Act and Rule 10b-5 thereunder.  NCC also
violated Rule 22c-1 promulgated under Section 22(c) of the Investment Company
Act.  The Commission seeks issuance of permanent injunctions against each
defendant prohibiting future violations of the above provisions; disgorgement by
each defendant of his or its ill-gotten gains together with prejudgment interest
thereon; payment of a civil penalty by each defendant; and an order prohibiting
defendant Lewis from acting as an officer or director of any issuer.
THE DEFENDANTS
8.JB Oxford Holdings, Inc., a Utah corporation located in Beverly
Hills, California, is a holding company that provides clearing and execution
services and discount brokerage services through its subsidiaries, JB Oxford &
Co. and defendant NCC.  JBOH’s common stock trades on the Nasdaq SmallCap
Market.
9.National Clearing Corporation, located in Beverly Hills, California, is
a broker-dealer registered with the Commission.  NCC is a wholly-owned
subsidiary of JBOH.  Prior to April 2003, JBOH had one subsidiary, JB Oxford &
Co., which provided all of the firm’s retail brokerage and clearing business.  In or
about April 2003, JB Oxford & Co. was reorganized into two subsidiary entities –
a retail brokerage firm (JB Oxford & Co.), and a clearing firm (NCC).  NCC is the
current name for the entity involved in the market timing and late trading conduct
alleged herein.  NCC clears transactions for correspondent brokers, including JB
Oxford and Co., holds funds and securities for JB Oxford & Co., and handles
institutional business previously handled by JB Oxford & Co.
10.James G. Lewis, age 39, is a resident of Santa Monica, California. 
Lewis was a member of the board of directors, the president, and the chief
operating officer of JBOH from approximately 1999 until he resigned in April

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2004.  He was president and CEO of JB Oxford & Co. and NCC from 1999 until
he resigned in December 2003.  Lewis holds Series 7 (general securities), Series
24 (general securities principal), and Series 63 (uniform state law examination)
securities licenses.  Lewis is also an attorney admitted to practice in Florida and
Tennessee.
11.Kraig L. Kibble, age 44, is a resident of La Crescenta, California. 
Kibble has been NCC’s director of operations since September 2002.  Kibble was
the assistant vice president of operations from January 2002 until he was promoted
to director of operations in September 2002.  As the assistant vice president and as
director of operations, Kibble supervised NCC’s mutual fund department and
oversaw the trading by NCC’s institutional customers.  Kibble reported to Lewis
throughout 2002 until August 2003.  Kibble currently holds Series 4 (registered
options principal), Series 7 (general securities), Series 24 (general securities
principal), Series 53 (municipal securities principal), Series 55 (registered equity
trader), and Series 63 (uniform state law examination) securities licenses.
12.James Y. Lin, age 46, is a resident of Rancho Palos Verdes,
California.  Lin has been the vice president of correspondent services at JB Oxford
& Co. and NCC since at least May 2002.  In that position, Lin is responsible for
attracting additional correspondent brokers and negotiating clearing agreements
between those brokers and NCC.  From at least May 2002 through December
2003, Lin reported directly to Lewis.  Lin holds Series 4 (registered options
principal), Series 7 (general securities), and Series 24 (general securities principal)
securities licenses. 
THE FRAUDULENT SCHEME
A.NCC’s Mutual Fund Trade Entry Procedures
13.The National Securities Clearing Corporation (“NSCC”) is the main
provider of centralized information services and money settlement for mutual
funds and was established to take over clearance and settlement for the major

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stock exchanges.  NSCC’s FundServ system assists in this process by automating
and centralizing the processing of mutual fund transactions.  Orders for purchases
and sales of mutual funds flow electronically from broker-dealers and other
financial institutions through FundServ to the appropriate mutual fund.  Using
FundServ, each fund and each firm require only one electronic link to NSCC for
transaction processing, thereby streamlining money settlement.  Throughout 2002
and 2003, NCC used a service provider, ADP/SIS, as its link to NSCC’s FundServ
system.
14.NCC’s ADP/SIS software accepted NCC-originated mutual fund
orders, edited them for errors, and delivered them through FundServ to NSCC. 
NSCC, in turn, delivered those orders to the various mutual funds.  Orders
processed through NSCC were executed with the mutual fund companies on an
“omnibus basis.”  When trades were communicated in this manner, the mutual
funds received only customer account numbers, representative codes (identifying
the originating broker), and office codes (identifying where the trade originated)
as client identifiers rather than learning their identity.
B.NCC Enters Into An Agreement With Its First Institutional Customer
15.In May 2002, Lewis began negotiating the opening of two accounts at
NCC in the amount of $5 million each with a Switzerland-based money
management firm (the “Swiss money management firm”).  During or about May
2002, Lewis met with representatives of the Swiss money management firm’s
London-based investment adviser (the “London Adviser”).  During that meeting,
Lewis learned that the London Adviser’s main trading strategy was market timing
and that it utilized some United States brokerage firms to carry out this strategy.  
16.Representatives from the London Adviser also expressed an interest
in late trading during this meeting.  The representatives explained that they were
permitted to submit trades to one clearing firm until 7:00 p.m. Eastern time. 
During the meeting, Lewis learned that the London Adviser was able to consider

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after-market news and market performance in making its trading decisions.  Lewis
understood that in order to obtain this business, NCC would have to provide
similar services to those provided by other United States clearing firms.
17.After the London meeting, Lewis directed Kibble to look into NCC’s
cut-off time for mutual fund order entry.  As a result, Kibble contacted an
ADP/SIS customer service representative who told Kibble that NCC could submit
mutual fund trades until 3:50 p.m. Pacific time (6:50 p.m. Eastern time).
18.In a May 24, 2002 e-mail in response to an e-mail by Kibble informing
Lewis that NCC could submit trades to ADP/SIS up until 3:50 p.m. Pacific time,
Lewis responded: 
this is great news!  I will tell them we need preliminary [order entry]
during the day and final orders by 6:30 pm EST; and no fee on no
load; and we will continue working on getting a later time entry on
orders.  I will tell them we want $25 MM to start and would like to do
more once we show them the great CX [customer service] we are
going to deliver!
19.NCC, through Lewis’ efforts, entered into a written agreement with
the Swiss money management firm establishing the terms of the relationship.  That
agreement, called a mutual fund procedural agreement, was used as a template for
each successive procedural agreement that NCC entered into with future
institutional customers.  Kibble and Lewis obtained the information for the
agreement, including the time by which the Swiss money management firm was
required to confirm mutual fund trades, through negotiations with the London
Adviser and the Swiss money management firm.  The portion of the agreement
relating to late trading stated:
Each day that Customer intends to engage in mutual fund transactions,
Customer shall send via Excel spreadsheet or other mutually
acceptable means to [NCC] a list of proposed transactions before 4:15

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p.m. New York time.  Transaction detail shall include mutual fund
names and symbols, plus all other information necessary to effect the
transaction(s) as agreed to by the parties.  Customer intends to confirm
and activate such trade communication via telephone by 4:45 p.m.,
New York time, which shall be deemed made upon oral or written
verification by [NCC]. . . .
20.Lewis reviewed and edited the original procedural agreement between
NCC and the Swiss money management firm and approved the final document. 
Lewis signed the agreement on behalf of NCC on May 30, 2002.
C.The Late Trading Scheme
1.The Defendants Facilitate Late Trading
21.From June 2002 through September 2003, NCC facilitated more than
12,000 late trades on behalf of its institutional customers in more than 74 mutual
fund families, which included more than 600 mutual funds.  The fund families 
included, but were not limited to, the AIM Funds, American Skandia Funds,
Alliance Funds, and PAX World Balanced Fund.  The institutional customers each
conducted business with NCC based upon procedures set forth in procedural
agreements virtually identical to the agreement negotiated by Lewis with the Swiss
money management firm.  The original procedural agreement required the Swiss
money management firm to pay NCC 90 basis points (or 0.9% of assets under
management) for the right to engage in late trading and market timing through
NCC.  Future institutional customers paid 100 basis points (or 1% of assets under
management) for the same opportunities.  While the cut-off time for order
submission varied in the procedural agreements for different institutional
customers, all institutional customers who engaged in late trading through NCC
were permitted to receive the same day’s NAV for mutual fund trades confirmed
after 4:00 p.m. Eastern time.
22.With Lewis’ knowledge, Lin sought out additional institutional

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customers interested in market timing and late trading in mutual funds after the
initial procedural agreement with the Swiss money management firm was executed. 
Once Lin identified potential new customers, he negotiated the terms of the
relationship.  Lin provided the institutional customers with a procedural agreement
after Lewis signed it.  Once these agreements were in place, late trading and market
timing commenced.
23.Lin negotiated such late trading arrangements with at least four of
NCC’s institutional customers, including a Boca Raton, Florida-based
correspondent broker that was one of NCC’s most lucrative clients (the “Boca
Raton correspondent client”).  In order to obtain the Boca Raton correspondent
client’s business, Lin promised representatives from the Boca Raton correspondent
client that they could submit or cancel mutual fund orders as late as 6:00 p.m.
Eastern time.  As of September 25, 2002, Lin opened accounts through which late
trading and market timing was to occur worth over $40 million.
24.Lin also acted as the liaison for some of the institutional customers
and was advised of any problems that arose from their mutual fund trades.  Lin
knew that the institutional customers submitted, confirmed, and cancelled mutual
fund trades after 4:00 p.m. Eastern time.  In one instance, Lin assured the Boca
Raton correspondent client’s representatives that NCC personnel would be
available to modify orders up until 6:15 p.m. Eastern time.
25.Pursuant to Lewis’ instructions, Kibble notified NCC’s mutual fund
department personnel of the terms of the original procedural agreement between
NCC and the Swiss money management firm and instructed the mutual fund
department to follow the procedures in the agreement for mutual fund order entry. 
Kibble understood that NCC’s mutual fund department followed the procedures for
the additional institutional customers NCC attracted and instructed his staff to
facilitate trades in mutual funds after 4:00 p.m. Eastern time.  
26.Pursuant to their procedural agreements with NCC, each institutional

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customer sent an e-mail to NCC’s mutual fund department personnel between 2:00
p.m. and 4:00 p.m. Eastern time with an attached spreadsheet listing that day’s
potential trades.  Also pursuant to their procedural agreements, the institutional
customers notified NCC by telephone or e-mail to have the order executed,
cancelled, or revised after 4:00 p.m. Eastern time the same day.  
27.Each institutional customer’s procedural agreement specified the cut-
off time by which the customer had to submit its trade confirmation to NCC.  The
agreements specified that orders had to be confirmed either by 4:15 p.m. or 4:45
p.m. Eastern time.  Most days, however, some customers, including the Boca Raton
correspondent client, confirmed trades later than the times specified in their
agreements.
28.Lewis frequently communicated to NCC employees, including Kibble
and Lin, that he considered the institutional customers to be a very important part
of the business and a significant revenue generator for the firm.  Defendants Lin
and Kibble therefore kept Lewis abreast of the status and profitability of
institutional customer business on a regular basis.
29.Lewis routinely approved overtime for mutual fund department
personnel who entered mutual fund trades that were received after 2:00 p.m. Pacific
time – the time that employees were scheduled to go home.  Lewis knew from e-
mail communications from Kibble on August 2, 2003 and August 8, 2003, among
other sources, that overtime was needed so that mutual fund department personnel
could enter “late trades.”  
30.On or about September 3, 2003, Lewis was informed through an e-
mail communication from Kibble that a mutual fund department employee wanted
to require the institutional customers to submit their trades earlier in the day to
provide the department with more time to review trades for errors and restrictions. 
Lewis instead directed that another employee be added to the department in order
to allow clients to submit trades as late in the day as possible.  Lewis also

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transmitted an e-mail to Kibble stating, “kraig, I would like to know what is going
on here. we got these clients by promising certain services. why are we shorting
[sic] the time?”  Later, in the same e-mail chain, Lewis also stated:
. . . as a matter of practice, we discussed a 5 pm PACIFIC cut-off for
trades, if we want to keep this business, we need to give our clients as
much opportunity as possible to make money. we have a strategic
advantage in our west coast location; we should not be trying to match
NY, but being better on the westcoast [sic]. we have a great
opportunity here and I would like a better explanation of why we can't
deliver [sic].
2.The Defendants Knew Or Were Reckless In Not Knowing That
Late Trading Was Illegal
31.Prior to being permitted to facilitate trades in a particular mutual fund,
NCC was required to enter into a dealer agreement with the mutual fund family in
which its customers wanted to trade.  As a result, NCC had dealer agreements with
many mutual fund families.  These dealer agreements obligated NCC to comport
with the mutual funds’ prospectuses, among other things.  The dealer agreements in
place between NCC and many mutual fund families, including but not limited to,
the AIM Funds, Alliance Capital Funds, American Skandia Funds, INVESCO
Funds, and MFS Funds, required NCC to sell and redeem shares at the publicly
available price as established in the prospectuses.  The prospectuses from each of
these funds state that the publicly available price for the shares is calculated at 4:00
p.m. Eastern time or at the close of the New York Stock Exchange (which is also
4:00 p.m. Eastern time).  For example, NCC’s dealer agreement with ING
specifically provides for a 4:00 p.m. Eastern time cut-off for trade entry at the
current day’s NAV: 
You understand that Instructions [for purchases, redemptions, or
exchanges] shall be deemed to have been received as of the day on

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which the Instructions [for purchases, redemptions, or exchanges]
were placed by you with the Trust or its designated agent, if such
Instructions [for purchases, redemptions, or exchanges] are received
by you from Client, or from a person having discretion over a client’s
account, prior to 4:00 p.m., Eastern Standard Time (“EST”) on a
business day on which the New York Stock Exchange is open (“Close
of Trading”) and transmitted to Trust no later than 8:30 a.m., Eastern
Time, on the next business day following such Trade Date.
32.Some prospectuses for mutual fund families in which NCC facilitated
late trades, including, but not limited to, the Alliance Capital Funds, PAX Funds,
PIMCO Funds, Saratoga Funds, SunAmerica Capital Services Funds, Armada
Funds, and Harbor Funds state that only trades received prior to 4:00 p.m. Eastern
time will be given that day’s NAV.  For example, the Alliance Capital Funds’
February 2002 prospectus states:
. . . the Funds’ net asset value or NAV is calculated at 4:00 p.m.,
Eastern time, each day the Exchange is open for business. . . Your
order for purchase, sale, or exchange of shares is priced at the next
NAV calculated after your order is received in proper form by the
Fund. . .  Your broker must receive your sales request by 4:00 p.m.,
Eastern time, and submit it to the Fund by 5:00 p.m., Eastern time, for
you to receive that day’s NAV. . . .
33.NCC’s computer system that processed retail trades was programmed
to alert retail customers who placed mutual fund orders after 4:00 p.m. Eastern time
that their orders would be placed at the next day’s NAV.  Lewis, Kibble, and Lin
circumvented this safeguard by authorizing mutual fund personnel to manually
enter trades after 4:00 p.m. Eastern time and still receive the same day’s NAV.
34.In July 2003, NCC received a subpoena from the New York Attorney
General’s Office asking for documents related to any late trading or market timing

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activities.  Once NCC’s chief compliance officer received the subpoena and learned
for the first time that NCC had been facilitating late trading, he met with Kibble
and members of the mutual fund department and instructed them to cease the late
trading activity.  
35.Even though the defendants were on notice of the New York Attorney
General’s investigation of late trading and market timing, and despite the chief
compliance officer’s instruction, NCC continued accepting late trades from the
Boca Raton correspondent client until September 3, 2003 – when the New York
Attorney General filed a civil complaint related to late trading and market timing
activities.  State of New York v. Canary Capital Partners, LLC et al. (N.Y. Sup.
Ct.).
D.The Defendants Facilitate Illegal Market Timing
36.NCC not only allowed its institutional customers to conduct late
trading but also facilitated their market timing activities.  Mutual funds track
market timing through client identifiers such as customer account numbers,
representative codes (identifying the originating broker), and office codes
(identifying where the trade originated). 
37.Once a fund identified a potential timer by its account number and
began rejecting its trades, it often terminated the client’s privilege of trading in the
fund for a certain amount of time.  If the fund continued to notice the same account
number executing additional short-term trades, that account number was typically
restricted and no longer allowed to trade in the fund.  Likewise, if funds recognized
representative codes as frequent market timers, they would restrict trades from
clients bearing that representative code.  The same procedure held true for office
codes – if funds noticed a pattern of market timing activity originating from the
same office code they eventually rejected all trades from that office.
38. From June 2002 through September 2003, NCC employed various
methods to conceal certain of its institutional customers’ market timing activity

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from the mutual funds.  Specifically, NCC, Lewis, Kibble, and Lin authorized
and/or provided institutional customers with multiple client identifier numbers
(account numbers, representative codes, and office codes) to prevent the funds
from identifying timers and misrepresented NCC’s knowledge about the timing to
the funds.
39.In about July 2002, NCC began receiving notification from mutual
funds that trades were being rejected due to market timing.  These “kick-out
letters” noted a particular account number, representative code, or office code and
indicated that the trade was rejected because of impermissible “market timing,”
“short-term trading,” or “excessive trading.”  The kick-out letters often
quoted language from the fund’s prospectus stating the fund’s market timing
policy.  For example, a July 9, 2002, kick-out letter from Fidelity Investments
stated:
Short-term or excessive trading into and out of the fund may harm
performance by disrupting portfolio management strategies and by
increasing expenses.  Accordingly, the fund may reject any purchase
orders, including exchanges, particularly from market timers or
investors who, in [Fidelity’s] opinion, have a pattern of short-term or
excessive trading or whose trading has been or may be disruptive to
the fund.  For these purposes, [Fidelity] may consider an investor’s
trading history in the fund or other [funds within the same family], and
accounts under common ownership or control.
40.From July 2002 through September 2003, NCC received hundreds of
kick-out letters from various mutual funds, including AIM Funds, Alliance Capital
Funds, PIMCO Funds, INVESCO Funds, American Skandia Funds and MFS
Funds.  Defendants Lewis, Kibble and Lin knew about these letters.
41.After trading in accounts bearing certain account numbers was
restricted at a number of funds, NCC allowed some institutional customers,

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including the Swiss money management firm and the Boca Raton correspondent
client, to open numerous additional accounts with different numbers.  Because the
funds did not know the identity of the client behind an account number, those
clients were able to continue market timing without the funds knowing that their
trading had previously been restricted because of their market timing.  The practice
of generating numerous accounts to facilitate market timing was referred to by
NCC and the Boca Raton correspondent client as “cloning.”
42.NCC opened over 100 different accounts for the Boca Raton
correspondent client and at least 48 accounts for the Swiss money management
firm over a 15-month period in order to facilitate their market timing.  Specifically,
from June 2002 through September 2003, NCC facilitated almost 25,000 market
timing trades in at least 74 fund families for these customers, generating realized
gains for these two customers of at least $6.7 million.
43.In addition to authorizing the cloning of accounts, Kibble and Lin
authorized NCC mutual fund department personnel to issue numerous new
representative codes and office codes to NCC clients, including the Boca Raton
correspondent client and the Swiss money management firm, when these clients’
previous codes were blocked by the mutual funds, in order to facilitate the clients’
market timing activities.  
44.Lin agreed to provide the Boca Raton correspondent client with
multiple representative and office codes when he negotiated their correspondent
agreement.  A representative of the Boca Raton correspondent client communicated
directly with either Kibble, Lin or Lin’s assistant when he needed more
representative or office codes in order to continue facilitating additional market
timing of trades.  Kibble and Lin authorized NCC personnel to provide the Boca
Raton correspondent client with at least 25 representative codes for the five
registered representatives working for the Boca Raton correspondent client. 
Additionally, on several occasions, including as late as September 5, 2003, Kibble

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provided the Boca Raton correspondent client with different office codes, even
though he knew that client only operated out of one office.
45.Kibble communicated concerns he had about continued market timing
to Lewis and Lin.  Specifically, in an October 16, 2002, e-mail to Lewis and Lin,
Kibble stated:
I have mentioned this point regarding mutual fund market-timing
before; yet I think it bears repeating.  I caution against [NCC]
believing it will continue to receive significant revenue from market-
timers over the medium to long-term.  The restrictions that more and
more companies place on market-timing continue to increase.  The
fund companies put a great deal of effort into finding and restricting
accounts.  They watch for broker-dealers that allow clients to market-
time.  They are increasingly aware of [NCC] and the market-timing
our clients have been doing.  [NCC mutual fund department
personnel] are on the telephone with fund companies every morning
trying to talk our way out of further restrictions and other threats from
the fund companies. . . .
46.In a June 26, 2003 e-mail to the Swiss money management firm, and
copied to Lin regarding NCC’s increasing inability to facilitate market timing
activities due to the funds’ restrictions, Kibble stated:
It is correct that the number of trade rejects and fund restrictions for
your accounts have increased over time.  It is also correct that clients’
trading patterns have led to the rejections and restrictions.  We share
your concern.  Thus we continually look for ways to increase the
executions and decrease the restrictions.  We have taken steps such as
opening multiple accounts for each of your clients to reduce the size of
the trades and changing office codes and rep numbers [sic].  These
steps yield more execution than you would receive without them; yet,

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the problem you describe still exists.
47.Similarly, in an August 7, 2002 e-mail to Lewis and forwarded to Lin
regarding the same issues, Kibble wrote:
In the conference call with [the London Adviser] yesterday, we gave
them our primary recommendation to minimize the number of funds
that may restrict them due to market-timing.  As I mentioned to you a
few days ago, that recommendation is for them to periodically choose
new fund families in which they would like to invest.  Unfortunately,
they said that will not help them greatly, because they are only willing
to market-time international funds that are large enough to handle the
high dollar amount of their trades without charging a redemption fee. 
Hence, they have restricted their market-timing “universe” to
approximately 60 funds.  Next, [The London Adviser] and we decided
to change the rep numbers on each of their accounts so that each
would be different, in an attempt to reduce restrictions.  Similarly, we
decided to send new trades for some of their accounts with the
accounts changed to the client name, rather than [NCC’s] name.
48.As a result of increased market timing restrictions imposed on NCC by
the mutual funds, in May 2003, NCC began negotiating with a trust company to
clear additional mutual fund trades.  NCC knew that this additional platform could
provide clearing services to its Boca Raton correspondent client and other
institutional customers without mutual funds making the connection between this
activity and NCC.  Defendant Kibble sent an e-mail to NCC’s head of information
technology in order to begin the process of connecting NCC to the trust company’s
back office system.  In that e-mail, Kibble stated that clearing trades through the
trust company would “provide more trade executions and fewer rejections to the
[correspondent] client.”
49.NCC also negotiated timing capacity on behalf of its Boca Raton

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correspondent client and the Swiss money management firm with at least one
mutual fund even though Kibble and Lin understood that such an arrangement was
inconsistent with that fund’s disclosure in its prospectuses about its market timing
policies.  In a June 26, 2003 e-mail to the Boca Raton correspondent client, Kibble
stated:
We have negotiated with fund companies in an effort to reach an
agreement that would allow you the number of round trips per month
you request.  However, thus far, such discussions have not shown
promise, with the exception of high yield funds.  We have arranged
with one major fund company for you to be able to buy into a high
yield fund and make eight round trips per year.
Likewise, in an August 7, 2002 e-mail to Lewis, Kibble indicated that he took steps
to negotiate capacity on behalf of the Swiss money management fund, stating:
. . . per your [Lewis’] suggestion, Jonathan and I have been calling a
few, large fund companies to explore establishing a special
arrangement allowing JB Oxford [NCC] to do some market-timing
(e.g., one round trip per fund per week of 10MM) [sic].  That could
significantly help.  We do not yet have answers to report.
E.JBOH Reports As Revenues Fees Received By NCC Based On Its
Facilitation Of Late Trading And Market Timing
50.JBOH prepared its financial statements included in its Forms 10-Q for
the second quarter of 2002 through the third quarter of 2003 and its 2002 and 2003
Forms 10-K filed with the Commission on a consolidated basis.  JBOH thus
reported as revenues the almost $1 million in proceeds NCC received from
compensation arrangements with its institutional customers who engaged in late
trading and market timing.  Lewis signed JBOH’s 2002 and 2003 Forms 10-K filed
with the Commission in his capacity as a member of the board of directors.
///

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FIRST CLAIM FOR RELIEF
FRAUD IN THE OFFER OR SALE OF SECURITIES
Violations of Section 17(a) of the Securities Act
(Against All Defendants)
51.The Commission realleges and incorporates by reference ¶¶ 1 through
50 above.
52.The Defendants, and each of them, by engaging in the conduct
described above, directly or indirectly, in the offer or sale of securities by the use of
means or instruments of transportation or communication in interstate commerce or
by use of the mails:
a.with scienter, employed devices, schemes, or artifices to
defraud;
b.obtained money or property by means of untrue statements of a
material fact or by omitting to state a material fact necessary in
order to make the statements made, in light of the circumstances
under which they were made, not misleading; or
c.engaged in transactions, practices, or courses of business which
operated or would operate as a fraud or deceit upon the
purchaser.
53.By engaging in the conduct described above, each of the Defendants
violated, and unless restrained and enjoined will continue to violate, Section 17(a)
of the Securities Act, 15 U.S.C. § 77q(a).
///
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SECOND CLAIM FOR RELIEF
FRAUD IN CONNECTION WITH THE
PURCHASE OR SALE OF SECURITIES
Violations of Section 10(b) of the Exchange Act
and Rule 10b-5 thereunder
(Against All Defendants)
54.The Commission realleges and incorporates by reference ¶¶ 1 through
50 above.
55.The Defendants, and each of them, by engaging in the conduct
described above, directly or indirectly, in connection with the purchase or sale of a
security, by the use of means or instrumentalities of interstate commerce, of the
mails, or of the facilities of a national securities exchange, with scienter:
a.employed devices, schemes, or artifices to defraud; 
b.made untrue statements of a material fact or omitted to state a
material fact necessary in order to make the statements made, in
the light of the circumstances under which they were made, not
misleading; or
c.engaged in acts, practices, or courses of business which
operated or would operate as a fraud or deceit upon other
persons.
56.By engaging in the conduct described above, each of the Defendants
violated, and unless restrained and enjoined will continue to violate, Section 10(b)
of the Exchange Act, 15 U.S.C. § 78j(b), and Rule 10b-5 thereunder, 17 C.F.R. §
240.10b-5.
///
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THIRD CLAIM FOR RELIEF
IMPROPER LATE TRADING
Violation of Rule 22c-1 Promulgated Under
Section 22(c) of the Investment Company Act
(Against Defendant NCC)
57.The Commission realleges and incorporates by reference ¶¶ 1 through
50 above. 
58.In all instances of late trading alleged above, NCC was a dealer in the
mutual fund’s securities and was designated in the mutual fund’s prospectus as
authorized to consummate transactions in the mutual fund’s securities.
59.Defendant NCC, by engaging in the conduct described above, sold,
redeemed, or repurchased securities of registered investment companies at prices
not based upon the current net asset value of each such security next computed
after receipt of a tender of such security for redemption or of an order to purchase
or sell such security.
60.By engaging in the conduct described above, Defendant NCC violated,
and unless restrained and enjoined will continue to violate, Rule 22c-1, 17 C.F.R. §
270.22c-1, promulgated under Section 22(c) of the Investment Company Act of
1940, 15 U.S.C. § 80a-22(c).
PRAYER FOR RELIEF
WHEREFORE, the Commission respectfully requests that the Court:
I.
Issue findings of fact and conclusions of law that the defendants committed
the alleged violations.
II.
Issue judgments, in a form consistent with Fed. R. Civ. P. 65(d), permanently
enjoining each Defendant and his or its officers, agents, servants, employees and
attorneys, and those persons in active concert or participation with any of them,

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who receive actual notice of the order by personal service or otherwise, and each of
them, from violating Section 17(a) of the Securities Act and  Section 10(b) of the
Exchange Act and Rule 10b-5 thereunder, and also permanently enjoining NCC
from violating Rule 22c-1 promulgated under Section 22(c) of the Investment
Company Act.
III.
Enter an order, pursuant to Section 20(e) of the Securities Act, 15 U.S.C. §
77t(e), and Section 21(d)(2) of the Exchange Act, 15 U.S.C. § 78u(d)(2),
prohibiting Defendant Lewis from acting as an officer or director of any issuer that
has a class of securities registered pursuant to Section 12 of the Exchange Act, 15
U.S.C. § 781, or that is required to file reports pursuant to Section 15(d) of the
Exchange Act, 15 U.S.C. § 78o(d).
IV.
Order each Defendant to disgorge all ill-gotten gains from his or its illegal
conduct, together with prejudgment interest thereon.
V.
Order the Defendants to pay civil penalties under Section 20(d) of the
Securities Act, 15 U.S.C. § 77t(d), and Section 21(d)(3) of the Exchange Act, 15
U.S.C. § 78u(d)(3), and additionally order Defendant NCC to pay a civil penalty
under Section 42(e)(1) of the Investment Company Act, 25 U.S.C. § 80a-41(e)(1).
VI.
Retain jurisdiction of this action in accordance with the principles of equity
and the Federal Rules of Civil Procedure in order to implement and carry out the 
terms of all orders and decrees that may be entered, or to entertain any suitable
application or motion for additional relief within the jurisdiction of this Court.
///
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VII.
Grant such other and further relief as this Court may determine to be just and
necessary.
DATED: August 24, 2004_______________________
Jessica Rigley Marren
Attorney for Plaintiff
Securities and Exchange Commission

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KAREN MATTESON, Cal. Bar No. 102103
MICHELE WEIN LAYNE, Cal. Bar No. 118395
LORRAINE B. ECHAVARRIA, Cal. Bar No. 191860
JESSICA RIGLEY MARREN, Cal. Bar No. 208074

Attorneys for Plaintiff
Securities and Exchange Commission
Randall R. Lee, Regional Director
Sandra J. Harris, Associate Regional Director
5670 Wilshire Boulevard, 11th Floor
Los Angeles, California 90036-3648
Telephone: (323) 965-3998
Facsimile: (323) 965-3908

UNITED STATES DISTRICT COURT

FOR THE CENTRAL DISTRICT OF CALIFORNIA

SECURITIES AND EXCHANGE
COMMISSION,

Plaintiff,

v.

JB OXFORD HOLDINGS, INC.,
NATIONAL CLEARING
CORPORATION, JAMES G. LEWIS,
KRAIG L. KIBBLE, and JAMES Y. LIN,

Defendants.

Case No.

COMPLAINT FOR
VIOLATIONS OF THE
FEDERAL SECURITIES LAWS

Plaintiff Securities and Exchange Commission (“Commission”) alleges as

follows:

JURISDICTION AND VENUE   

1. This Court has jurisdiction over this action pursuant to Sections

20(b), 20(d)(1) and 22(a) of the Securities Act of 1933 (“Securities Act”), 15

U.S.C. §§ 77t(b), 77t(d)(1) & 77v(a); Sections 21(d)(1), 21(d)(3)(A), 21(e) and 27

of the Securities Exchange Act of 1934 (“Exchange Act”), 15 U.S.C. §§ 78u(d)(1),

78u(d)(3)(A), 78u(e) & 78aa; and Sections 42(d), 42(e)(1) and 44 of the

Investment Company Act of 1940 (“Investment Company Act”), 15 U.S.C. 



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§§ 80a-41(d), 80a-41(e)(1) & 80a-43.  Defendants have, directly or indirectly,

made use of the means or instrumentalities of interstate commerce, of the mails, or

of the facilities of a national securities exchange in connection with the

transactions, acts, practices, and courses of business alleged in this Complaint.  

2. Venue is proper in this district pursuant to Section 22(a) of the

Securities Act, 15 U.S.C. § 77v(a), Section 27 of the Exchange Act, 15 U.S.C.     

§ 78aa, and Section 44 of the Investment Company Act, 15 U.S.C. § 80a-43,

because certain of the transactions, acts, practices, and courses of conduct

constituting violations of the federal securities laws occurred within this district,

and because each of the defendants may be found, is an inhabitant of or transacts

business in this district. 

SUMMARY

3. This action concerns the facilitation of fraudulent late trading and

market timing by a registered broker-dealer, its parent company, and three senior

executives.  From June 2002 until September 2003, the defendants facilitated over

12,000 late trades by select institutional customers in over 600 mutual funds. 

“Late trading” refers to the practice of placing orders to buy or sell mutual fund

shares after 4:00 p.m. Eastern time, the time as of which mutual funds typically

calculate their net asset value (“NAV”), but receiving the price based on the NAV

already determined as of 4:00 p.m.  Late trading enables the trader to profit from

market events that occur after 4:00 p.m. but that are not reflected in that day’s

price.  

4. The defendants also deceived the mutual funds by engaging in

deceptive tactics to conceal their customers’ impermissible market timing

activities from the mutual funds.  “Market timing” includes (a) frequent buying

and selling of shares of the same mutual fund or (b) buying or selling mutual fund

shares in order to exploit inefficiencies in mutual fund pricing.  Market timing,

while not illegal per se, can harm other mutual fund shareholders because it can



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dilute the value of their shares, if the market timer is exploiting pricing

inefficiencies, or disrupt the management of the mutual fund’s investment

portfolio and cause the targeted mutual fund to incur costs borne by other

shareholders to accommodate frequent buying and selling of shares by the market

timer. 

5. Through its participation in the fraudulent late trading and market

timing schemes, defendant National Clearing Corporation (“NCC”) realized

almost $1 million in proceeds from compensation arrangements with its

institutional customers who engaged in late trading and market timing and allowed

those customers to reap at least $8 million in profits at the expense of long-term

mutual fund shareholders.  NCC’s parent company, defendant JB Oxford

Holdings, Inc. (“JBOH”), prepared its financial statements that were included in

its Forms 10-Q for the second quarter of 2002 through the third quarter of 2003

and its 2002 and 2003 Forms 10-K on a consolidated basis, thus reporting as

revenue the profits that NCC obtained from its late trading and market timing

activities.  

6. The agreements by which NCC enabled its customers to engage in

late trading were negotiated by defendant James G. Lewis, a member of JBOH’s

board of directors, JBOH’s president and chief operating officer and NCC’s

president and CEO, and by NCC’s vice president of correspondent services,

defendant James Y. Lin.  Defendant Kraig L. Kibble, who was NCC’s director of

operations, transmitted and approved transmittal of late trades to the mutual funds. 

With Lewis’ knowledge, Lin and Kibble engaged in various fraudulent practices

designed to conceal from the mutual funds the market timing of their shares by

NCC’s customers, including opening multiple customer accounts for the same

customer with different account numbers and using multiple representative codes

(identifying the originating broker) and office codes (identifying where the trade

originated) when transmitting orders.



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7. By engaging in the conduct described in this Complaint, each

defendant violated the antifraud provisions of Section 17(a) of the Securities Act

and Section 10(b) of the Exchange Act and Rule 10b-5 thereunder.  NCC also

violated Rule 22c-1 promulgated under Section 22(c) of the Investment Company

Act.  The Commission seeks issuance of permanent injunctions against each

defendant prohibiting future violations of the above provisions; disgorgement by

each defendant of his or its ill-gotten gains together with prejudgment interest

thereon; payment of a civil penalty by each defendant; and an order prohibiting

defendant Lewis from acting as an officer or director of any issuer.

THE DEFENDANTS

8. JB Oxford Holdings, Inc., a Utah corporation located in Beverly

Hills, California, is a holding company that provides clearing and execution

services and discount brokerage services through its subsidiaries, JB Oxford &

Co. and defendant NCC.  JBOH’s common stock trades on the Nasdaq SmallCap

Market.

9. National Clearing Corporation, located in Beverly Hills, California, is

a broker-dealer registered with the Commission.  NCC is a wholly-owned

subsidiary of JBOH.  Prior to April 2003, JBOH had one subsidiary, JB Oxford &

Co., which provided all of the firm’s retail brokerage and clearing business.  In or

about April 2003, JB Oxford & Co. was reorganized into two subsidiary entities –

a retail brokerage firm (JB Oxford & Co.), and a clearing firm (NCC).  NCC is the

current name for the entity involved in the market timing and late trading conduct

alleged herein.  NCC clears transactions for correspondent brokers, including JB

Oxford and Co., holds funds and securities for JB Oxford & Co., and handles

institutional business previously handled by JB Oxford & Co.

10. James G. Lewis, age 39, is a resident of Santa Monica, California. 

Lewis was a member of the board of directors, the president, and the chief

operating officer of JBOH from approximately 1999 until he resigned in April



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2004.  He was president and CEO of JB Oxford & Co. and NCC from 1999 until

he resigned in December 2003.  Lewis holds Series 7 (general securities), Series

24 (general securities principal), and Series 63 (uniform state law examination)

securities licenses.  Lewis is also an attorney admitted to practice in Florida and

Tennessee.

11. Kraig L. Kibble, age 44, is a resident of La Crescenta, California. 

Kibble has been NCC’s director of operations since September 2002.  Kibble was

the assistant vice president of operations from January 2002 until he was promoted

to director of operations in September 2002.  As the assistant vice president and as

director of operations, Kibble supervised NCC’s mutual fund department and

oversaw the trading by NCC’s institutional customers.  Kibble reported to Lewis

throughout 2002 until August 2003.  Kibble currently holds Series 4 (registered

options principal), Series 7 (general securities), Series 24 (general securities

principal), Series 53 (municipal securities principal), Series 55 (registered equity

trader), and Series 63 (uniform state law examination) securities licenses.

12. James Y. Lin, age 46, is a resident of Rancho Palos Verdes,

California.  Lin has been the vice president of correspondent services at JB Oxford

& Co. and NCC since at least May 2002.  In that position, Lin is responsible for

attracting additional correspondent brokers and negotiating clearing agreements

between those brokers and NCC.  From at least May 2002 through December

2003, Lin reported directly to Lewis.  Lin holds Series 4 (registered options

principal), Series 7 (general securities), and Series 24 (general securities principal)

securities licenses. 

THE FRAUDULENT SCHEME

A. NCC’s Mutual Fund Trade Entry Procedures

13. The National Securities Clearing Corporation (“NSCC”) is the main

provider of centralized information services and money settlement for mutual

funds and was established to take over clearance and settlement for the major



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stock exchanges.  NSCC’s FundServ system assists in this process by automating

and centralizing the processing of mutual fund transactions.  Orders for purchases

and sales of mutual funds flow electronically from broker-dealers and other

financial institutions through FundServ to the appropriate mutual fund.  Using

FundServ, each fund and each firm require only one electronic link to NSCC for

transaction processing, thereby streamlining money settlement.  Throughout 2002

and 2003, NCC used a service provider, ADP/SIS, as its link to NSCC’s FundServ

system.

14. NCC’s ADP/SIS software accepted NCC-originated mutual fund

orders, edited them for errors, and delivered them through FundServ to NSCC. 

NSCC, in turn, delivered those orders to the various mutual funds.  Orders

processed through NSCC were executed with the mutual fund companies on an

“omnibus basis.”  When trades were communicated in this manner, the mutual

funds received only customer account numbers, representative codes (identifying

the originating broker), and office codes (identifying where the trade originated)

as client identifiers rather than learning their identity.

B. NCC Enters Into An Agreement With Its First Institutional Customer

15. In May 2002, Lewis began negotiating the opening of two accounts at

NCC in the amount of $5 million each with a Switzerland-based money

management firm (the “Swiss money management firm”).  During or about May

2002, Lewis met with representatives of the Swiss money management firm’s

London-based investment adviser (the “London Adviser”).  During that meeting,

Lewis learned that the London Adviser’s main trading strategy was market timing

and that it utilized some United States brokerage firms to carry out this strategy.  

16. Representatives from the London Adviser also expressed an interest

in late trading during this meeting.  The representatives explained that they were

permitted to submit trades to one clearing firm until 7:00 p.m. Eastern time. 

During the meeting, Lewis learned that the London Adviser was able to consider



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after-market news and market performance in making its trading decisions.  Lewis

understood that in order to obtain this business, NCC would have to provide

similar services to those provided by other United States clearing firms.

17. After the London meeting, Lewis directed Kibble to look into NCC’s

cut-off time for mutual fund order entry.  As a result, Kibble contacted an

ADP/SIS customer service representative who told Kibble that NCC could submit

mutual fund trades until 3:50 p.m. Pacific time (6:50 p.m. Eastern time).

18. In a May 24, 2002 e-mail in response to an e-mail by Kibble informing

Lewis that NCC could submit trades to ADP/SIS up until 3:50 p.m. Pacific time,

Lewis responded: 

this is great news!  I will tell them we need preliminary [order entry]

during the day and final orders by 6:30 pm EST; and no fee on no

load; and we will continue working on getting a later time entry on

orders.  I will tell them we want $25 MM to start and would like to do

more once we show them the great CX [customer service] we are

going to deliver!

19. NCC, through Lewis’ efforts, entered into a written agreement with

the Swiss money management firm establishing the terms of the relationship.  That

agreement, called a mutual fund procedural agreement, was used as a template for

each successive procedural agreement that NCC entered into with future

institutional customers.  Kibble and Lewis obtained the information for the

agreement, including the time by which the Swiss money management firm was

required to confirm mutual fund trades, through negotiations with the London

Adviser and the Swiss money management firm.  The portion of the agreement

relating to late trading stated:

Each day that Customer intends to engage in mutual fund transactions,

Customer shall send via Excel spreadsheet or other mutually

acceptable means to [NCC] a list of proposed transactions before 4:15



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p.m. New York time.  Transaction detail shall include mutual fund

names and symbols, plus all other information necessary to effect the

transaction(s) as agreed to by the parties.  Customer intends to confirm

and activate such trade communication via telephone by 4:45 p.m.,

New York time, which shall be deemed made upon oral or written

verification by [NCC]. . . .

20. Lewis reviewed and edited the original procedural agreement between

NCC and the Swiss money management firm and approved the final document. 

Lewis signed the agreement on behalf of NCC on May 30, 2002.

C. The Late Trading Scheme

1. The Defendants Facilitate Late Trading

21. From June 2002 through September 2003, NCC facilitated more than

12,000 late trades on behalf of its institutional customers in more than 74 mutual

fund families, which included more than 600 mutual funds.  The fund families 

included, but were not limited to, the AIM Funds, American Skandia Funds,

Alliance Funds, and PAX World Balanced Fund.  The institutional customers each

conducted business with NCC based upon procedures set forth in procedural

agreements virtually identical to the agreement negotiated by Lewis with the Swiss

money management firm.  The original procedural agreement required the Swiss

money management firm to pay NCC 90 basis points (or 0.9% of assets under

management) for the right to engage in late trading and market timing through

NCC.  Future institutional customers paid 100 basis points (or 1% of assets under

management) for the same opportunities.  While the cut-off time for order

submission varied in the procedural agreements for different institutional

customers, all institutional customers who engaged in late trading through NCC

were permitted to receive the same day’s NAV for mutual fund trades confirmed

after 4:00 p.m. Eastern time.

22. With Lewis’ knowledge, Lin sought out additional institutional



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customers interested in market timing and late trading in mutual funds after the

initial procedural agreement with the Swiss money management firm was executed. 

Once Lin identified potential new customers, he negotiated the terms of the

relationship.  Lin provided the institutional customers with a procedural agreement

after Lewis signed it.  Once these agreements were in place, late trading and market

timing commenced.

23. Lin negotiated such late trading arrangements with at least four of

NCC’s institutional customers, including a Boca Raton, Florida-based

correspondent broker that was one of NCC’s most lucrative clients (the “Boca

Raton correspondent client”).  In order to obtain the Boca Raton correspondent

client’s business, Lin promised representatives from the Boca Raton correspondent

client that they could submit or cancel mutual fund orders as late as 6:00 p.m.

Eastern time.  As of September 25, 2002, Lin opened accounts through which late

trading and market timing was to occur worth over $40 million.

24. Lin also acted as the liaison for some of the institutional customers

and was advised of any problems that arose from their mutual fund trades.  Lin

knew that the institutional customers submitted, confirmed, and cancelled mutual

fund trades after 4:00 p.m. Eastern time.  In one instance, Lin assured the Boca

Raton correspondent client’s representatives that NCC personnel would be

available to modify orders up until 6:15 p.m. Eastern time.

25. Pursuant to Lewis’ instructions, Kibble notified NCC’s mutual fund

department personnel of the terms of the original procedural agreement between

NCC and the Swiss money management firm and instructed the mutual fund

department to follow the procedures in the agreement for mutual fund order entry. 

Kibble understood that NCC’s mutual fund department followed the procedures for

the additional institutional customers NCC attracted and instructed his staff to

facilitate trades in mutual funds after 4:00 p.m. Eastern time.  

26. Pursuant to their procedural agreements with NCC, each institutional



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customer sent an e-mail to NCC’s mutual fund department personnel between 2:00

p.m. and 4:00 p.m. Eastern time with an attached spreadsheet listing that day’s

potential trades.  Also pursuant to their procedural agreements, the institutional

customers notified NCC by telephone or e-mail to have the order executed,

cancelled, or revised after 4:00 p.m. Eastern time the same day.  

27. Each institutional customer’s procedural agreement specified the cut-

off time by which the customer had to submit its trade confirmation to NCC.  The

agreements specified that orders had to be confirmed either by 4:15 p.m. or 4:45

p.m. Eastern time.  Most days, however, some customers, including the Boca Raton

correspondent client, confirmed trades later than the times specified in their

agreements.

28. Lewis frequently communicated to NCC employees, including Kibble

and Lin, that he considered the institutional customers to be a very important part

of the business and a significant revenue generator for the firm.  Defendants Lin

and Kibble therefore kept Lewis abreast of the status and profitability of

institutional customer business on a regular basis.

29. Lewis routinely approved overtime for mutual fund department

personnel who entered mutual fund trades that were received after 2:00 p.m. Pacific

time – the time that employees were scheduled to go home.  Lewis knew from e-

mail communications from Kibble on August 2, 2003 and August 8, 2003, among

other sources, that overtime was needed so that mutual fund department personnel

could enter “late trades.”  

30. On or about September 3, 2003, Lewis was informed through an e-

mail communication from Kibble that a mutual fund department employee wanted

to require the institutional customers to submit their trades earlier in the day to

provide the department with more time to review trades for errors and restrictions. 

Lewis instead directed that another employee be added to the department in order

to allow clients to submit trades as late in the day as possible.  Lewis also



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transmitted an e-mail to Kibble stating, “kraig, I would like to know what is going

on here. we got these clients by promising certain services. why are we shorting

[sic] the time?”  Later, in the same e-mail chain, Lewis also stated:

. . . as a matter of practice, we discussed a 5 pm PACIFIC cut-off for

trades, if we want to keep this business, we need to give our clients as

much opportunity as possible to make money. we have a strategic

advantage in our west coast location; we should not be trying to match

NY, but being better on the westcoast [sic]. we have a great

opportunity here and I would like a better explanation of why we can't

deliver [sic].

2. The Defendants Knew Or Were Reckless In Not Knowing That

Late Trading Was Illegal

31. Prior to being permitted to facilitate trades in a particular mutual fund,

NCC was required to enter into a dealer agreement with the mutual fund family in

which its customers wanted to trade.  As a result, NCC had dealer agreements with

many mutual fund families.  These dealer agreements obligated NCC to comport

with the mutual funds’ prospectuses, among other things.  The dealer agreements in

place between NCC and many mutual fund families, including but not limited to,

the AIM Funds, Alliance Capital Funds, American Skandia Funds, INVESCO

Funds, and MFS Funds, required NCC to sell and redeem shares at the publicly

available price as established in the prospectuses.  The prospectuses from each of

these funds state that the publicly available price for the shares is calculated at 4:00

p.m. Eastern time or at the close of the New York Stock Exchange (which is also

4:00 p.m. Eastern time).  For example, NCC’s dealer agreement with ING

specifically provides for a 4:00 p.m. Eastern time cut-off for trade entry at the

current day’s NAV: 

You understand that Instructions [for purchases, redemptions, or

exchanges] shall be deemed to have been received as of the day on



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which the Instructions [for purchases, redemptions, or exchanges]

were placed by you with the Trust or its designated agent, if such

Instructions [for purchases, redemptions, or exchanges] are received

by you from Client, or from a person having discretion over a client’s

account, prior to 4:00 p.m., Eastern Standard Time (“EST”) on a

business day on which the New York Stock Exchange is open (“Close

of Trading”) and transmitted to Trust no later than 8:30 a.m., Eastern

Time, on the next business day following such Trade Date.

32. Some prospectuses for mutual fund families in which NCC facilitated

late trades, including, but not limited to, the Alliance Capital Funds, PAX Funds,

PIMCO Funds, Saratoga Funds, SunAmerica Capital Services Funds, Armada

Funds, and Harbor Funds state that only trades received prior to 4:00 p.m. Eastern

time will be given that day’s NAV.  For example, the Alliance Capital Funds’

February 2002 prospectus states:

. . . the Funds’ net asset value or NAV is calculated at 4:00 p.m.,

Eastern time, each day the Exchange is open for business. . . Your

order for purchase, sale, or exchange of shares is priced at the next

NAV calculated after your order is received in proper form by the

Fund. . .  Your broker must receive your sales request by 4:00 p.m.,

Eastern time, and submit it to the Fund by 5:00 p.m., Eastern time, for

you to receive that day’s NAV. . . .

33. NCC’s computer system that processed retail trades was programmed

to alert retail customers who placed mutual fund orders after 4:00 p.m. Eastern time

that their orders would be placed at the next day’s NAV.  Lewis, Kibble, and Lin

circumvented this safeguard by authorizing mutual fund personnel to manually

enter trades after 4:00 p.m. Eastern time and still receive the same day’s NAV.

34. In July 2003, NCC received a subpoena from the New York Attorney

General’s Office asking for documents related to any late trading or market timing



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activities.  Once NCC’s chief compliance officer received the subpoena and learned

for the first time that NCC had been facilitating late trading, he met with Kibble

and members of the mutual fund department and instructed them to cease the late

trading activity.  

35. Even though the defendants were on notice of the New York Attorney

General’s investigation of late trading and market timing, and despite the chief

compliance officer’s instruction, NCC continued accepting late trades from the

Boca Raton correspondent client until September 3, 2003 – when the New York

Attorney General filed a civil complaint related to late trading and market timing

activities.  State of New York v. Canary Capital Partners, LLC et al. (N.Y. Sup.

Ct.).

D. The Defendants Facilitate Illegal Market Timing

36. NCC not only allowed its institutional customers to conduct late

trading but also facilitated their market timing activities.  Mutual funds track

market timing through client identifiers such as customer account numbers,

representative codes (identifying the originating broker), and office codes

(identifying where the trade originated). 

37. Once a fund identified a potential timer by its account number and

began rejecting its trades, it often terminated the client’s privilege of trading in the

fund for a certain amount of time.  If the fund continued to notice the same account

number executing additional short-term trades, that account number was typically

restricted and no longer allowed to trade in the fund.  Likewise, if funds recognized

representative codes as frequent market timers, they would restrict trades from

clients bearing that representative code.  The same procedure held true for office

codes – if funds noticed a pattern of market timing activity originating from the

same office code they eventually rejected all trades from that office.

38.  From June 2002 through September 2003, NCC employed various

methods to conceal certain of its institutional customers’ market timing activity



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from the mutual funds.  Specifically, NCC, Lewis, Kibble, and Lin authorized

and/or provided institutional customers with multiple client identifier numbers

(account numbers, representative codes, and office codes) to prevent the funds

from identifying timers and misrepresented NCC’s knowledge about the timing to

the funds.

39. In about July 2002, NCC began receiving notification from mutual

funds that trades were being rejected due to market timing.  These “kick-out

letters” noted a particular account number, representative code, or office code and

indicated that the trade was rejected because of impermissible “market timing,”

“short-term trading,” or “excessive trading.”  The kick-out letters often

quoted language from the fund’s prospectus stating the fund’s market timing

policy.  For example, a July 9, 2002, kick-out letter from Fidelity Investments

stated:

Short-term or excessive trading into and out of the fund may harm

performance by disrupting portfolio management strategies and by

increasing expenses.  Accordingly, the fund may reject any purchase

orders, including exchanges, particularly from market timers or

investors who, in [Fidelity’s] opinion, have a pattern of short-term or

excessive trading or whose trading has been or may be disruptive to

the fund.  For these purposes, [Fidelity] may consider an investor’s

trading history in the fund or other [funds within the same family], and

accounts under common ownership or control.

40. From July 2002 through September 2003, NCC received hundreds of

kick-out letters from various mutual funds, including AIM Funds, Alliance Capital

Funds, PIMCO Funds, INVESCO Funds, American Skandia Funds and MFS

Funds.  Defendants Lewis, Kibble and Lin knew about these letters.

41. After trading in accounts bearing certain account numbers was

restricted at a number of funds, NCC allowed some institutional customers,



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including the Swiss money management firm and the Boca Raton correspondent

client, to open numerous additional accounts with different numbers.  Because the

funds did not know the identity of the client behind an account number, those

clients were able to continue market timing without the funds knowing that their

trading had previously been restricted because of their market timing.  The practice

of generating numerous accounts to facilitate market timing was referred to by

NCC and the Boca Raton correspondent client as “cloning.”

42. NCC opened over 100 different accounts for the Boca Raton

correspondent client and at least 48 accounts for the Swiss money management

firm over a 15-month period in order to facilitate their market timing.  Specifically,

from June 2002 through September 2003, NCC facilitated almost 25,000 market

timing trades in at least 74 fund families for these customers, generating realized

gains for these two customers of at least $6.7 million.

43. In addition to authorizing the cloning of accounts, Kibble and Lin

authorized NCC mutual fund department personnel to issue numerous new

representative codes and office codes to NCC clients, including the Boca Raton

correspondent client and the Swiss money management firm, when these clients’

previous codes were blocked by the mutual funds, in order to facilitate the clients’

market timing activities.  

44. Lin agreed to provide the Boca Raton correspondent client with

multiple representative and office codes when he negotiated their correspondent

agreement.  A representative of the Boca Raton correspondent client communicated

directly with either Kibble, Lin or Lin’s assistant when he needed more

representative or office codes in order to continue facilitating additional market

timing of trades.  Kibble and Lin authorized NCC personnel to provide the Boca

Raton correspondent client with at least 25 representative codes for the five

registered representatives working for the Boca Raton correspondent client. 

Additionally, on several occasions, including as late as September 5, 2003, Kibble



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provided the Boca Raton correspondent client with different office codes, even

though he knew that client only operated out of one office.

45. Kibble communicated concerns he had about continued market timing

to Lewis and Lin.  Specifically, in an October 16, 2002, e-mail to Lewis and Lin,

Kibble stated:

I have mentioned this point regarding mutual fund market-timing

before; yet I think it bears repeating.  I caution against [NCC]

believing it will continue to receive significant revenue from market-

timers over the medium to long-term.  The restrictions that more and

more companies place on market-timing continue to increase.  The

fund companies put a great deal of effort into finding and restricting

accounts.  They watch for broker-dealers that allow clients to market-

time.  They are increasingly aware of [NCC] and the market-timing

our clients have been doing.  [NCC mutual fund department

personnel] are on the telephone with fund companies every morning

trying to talk our way out of further restrictions and other threats from

the fund companies. . . .

46. In a June 26, 2003 e-mail to the Swiss money management firm, and

copied to Lin regarding NCC’s increasing inability to facilitate market timing

activities due to the funds’ restrictions, Kibble stated:

It is correct that the number of trade rejects and fund restrictions for

your accounts have increased over time.  It is also correct that clients’

trading patterns have led to the rejections and restrictions.  We share

your concern.  Thus we continually look for ways to increase the

executions and decrease the restrictions.  We have taken steps such as

opening multiple accounts for each of your clients to reduce the size of

the trades and changing office codes and rep numbers [sic].  These

steps yield more execution than you would receive without them; yet,



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the problem you describe still exists.

47. Similarly, in an August 7, 2002 e-mail to Lewis and forwarded to Lin

regarding the same issues, Kibble wrote:

In the conference call with [the London Adviser] yesterday, we gave

them our primary recommendation to minimize the number of funds

that may restrict them due to market-timing.  As I mentioned to you a

few days ago, that recommendation is for them to periodically choose

new fund families in which they would like to invest.  Unfortunately,

they said that will not help them greatly, because they are only willing

to market-time international funds that are large enough to handle the

high dollar amount of their trades without charging a redemption fee. 

Hence, they have restricted their market-timing “universe” to

approximately 60 funds.  Next, [The London Adviser] and we decided

to change the rep numbers on each of their accounts so that each

would be different, in an attempt to reduce restrictions.  Similarly, we

decided to send new trades for some of their accounts with the

accounts changed to the client name, rather than [NCC’s] name.

48. As a result of increased market timing restrictions imposed on NCC by

the mutual funds, in May 2003, NCC began negotiating with a trust company to

clear additional mutual fund trades.  NCC knew that this additional platform could

provide clearing services to its Boca Raton correspondent client and other

institutional customers without mutual funds making the connection between this

activity and NCC.  Defendant Kibble sent an e-mail to NCC’s head of information

technology in order to begin the process of connecting NCC to the trust company’s

back office system.  In that e-mail, Kibble stated that clearing trades through the

trust company would “provide more trade executions and fewer rejections to the

[correspondent] client.”

49. NCC also negotiated timing capacity on behalf of its Boca Raton



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correspondent client and the Swiss money management firm with at least one

mutual fund even though Kibble and Lin understood that such an arrangement was

inconsistent with that fund’s disclosure in its prospectuses about its market timing

policies.  In a June 26, 2003 e-mail to the Boca Raton correspondent client, Kibble

stated:

We have negotiated with fund companies in an effort to reach an

agreement that would allow you the number of round trips per month

you request.  However, thus far, such discussions have not shown

promise, with the exception of high yield funds.  We have arranged

with one major fund company for you to be able to buy into a high

yield fund and make eight round trips per year.

Likewise, in an August 7, 2002 e-mail to Lewis, Kibble indicated that he took steps

to negotiate capacity on behalf of the Swiss money management fund, stating:

. . . per your [Lewis’] suggestion, Jonathan and I have been calling a

few, large fund companies to explore establishing a special

arrangement allowing JB Oxford [NCC] to do some market-timing

(e.g., one round trip per fund per week of 10MM) [sic].  That could

significantly help.  We do not yet have answers to report.

E. JBOH Reports As Revenues Fees Received By NCC Based On Its

Facilitation Of Late Trading And Market Timing

50. JBOH prepared its financial statements included in its Forms 10-Q for

the second quarter of 2002 through the third quarter of 2003 and its 2002 and 2003

Forms 10-K filed with the Commission on a consolidated basis.  JBOH thus

reported as revenues the almost $1 million in proceeds NCC received from

compensation arrangements with its institutional customers who engaged in late

trading and market timing.  Lewis signed JBOH’s 2002 and 2003 Forms 10-K filed

with the Commission in his capacity as a member of the board of directors.

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FIRST CLAIM FOR RELIEF

FRAUD IN THE OFFER OR SALE OF SECURITIES

Violations of Section 17(a) of the Securities Act

(Against All Defendants)

51. The Commission realleges and incorporates by reference ¶¶ 1 through

50 above.

52. The Defendants, and each of them, by engaging in the conduct

described above, directly or indirectly, in the offer or sale of securities by the use of

means or instruments of transportation or communication in interstate commerce or

by use of the mails:

a. with scienter, employed devices, schemes, or artifices to

defraud;

b. obtained money or property by means of untrue statements of a

material fact or by omitting to state a material fact necessary in

order to make the statements made, in light of the circumstances

under which they were made, not misleading; or

c. engaged in transactions, practices, or courses of business which

operated or would operate as a fraud or deceit upon the

purchaser.

53. By engaging in the conduct described above, each of the Defendants

violated, and unless restrained and enjoined will continue to violate, Section 17(a)

of the Securities Act, 15 U.S.C. § 77q(a).

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SECOND CLAIM FOR RELIEF

FRAUD IN CONNECTION WITH THE

PURCHASE OR SALE OF SECURITIES

Violations of Section 10(b) of the Exchange Act

and Rule 10b-5 thereunder

(Against All Defendants)

54. The Commission realleges and incorporates by reference ¶¶ 1 through

50 above.

55. The Defendants, and each of them, by engaging in the conduct

described above, directly or indirectly, in connection with the purchase or sale of a

security, by the use of means or instrumentalities of interstate commerce, of the

mails, or of the facilities of a national securities exchange, with scienter:

a. employed devices, schemes, or artifices to defraud; 

b. made untrue statements of a material fact or omitted to state a

material fact necessary in order to make the statements made, in

the light of the circumstances under which they were made, not

misleading; or

c. engaged in acts, practices, or courses of business which

operated or would operate as a fraud or deceit upon other

persons.

56. By engaging in the conduct described above, each of the Defendants

violated, and unless restrained and enjoined will continue to violate, Section 10(b)

of the Exchange Act, 15 U.S.C. § 78j(b), and Rule 10b-5 thereunder, 17 C.F.R. §

240.10b-5.

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THIRD CLAIM FOR RELIEF

IMPROPER LATE TRADING

Violation of Rule 22c-1 Promulgated Under

Section 22(c) of the Investment Company Act

(Against Defendant NCC)

57. The Commission realleges and incorporates by reference ¶¶ 1 through

50 above. 

58. In all instances of late trading alleged above, NCC was a dealer in the

mutual fund’s securities and was designated in the mutual fund’s prospectus as

authorized to consummate transactions in the mutual fund’s securities.

59. Defendant NCC, by engaging in the conduct described above, sold,

redeemed, or repurchased securities of registered investment companies at prices

not based upon the current net asset value of each such security next computed

after receipt of a tender of such security for redemption or of an order to purchase

or sell such security.

60. By engaging in the conduct described above, Defendant NCC violated,

and unless restrained and enjoined will continue to violate, Rule 22c-1, 17 C.F.R. §

270.22c-1, promulgated under Section 22(c) of the Investment Company Act of

1940, 15 U.S.C. § 80a-22(c).

PRAYER FOR RELIEF

WHEREFORE, the Commission respectfully requests that the Court:

I.

Issue findings of fact and conclusions of law that the defendants committed

the alleged violations.

II.

Issue judgments, in a form consistent with Fed. R. Civ. P. 65(d), permanently

enjoining each Defendant and his or its officers, agents, servants, employees and

attorneys, and those persons in active concert or participation with any of them,



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who receive actual notice of the order by personal service or otherwise, and each of

them, from violating Section 17(a) of the Securities Act and  Section 10(b) of the

Exchange Act and Rule 10b-5 thereunder, and also permanently enjoining NCC

from violating Rule 22c-1 promulgated under Section 22(c) of the Investment

Company Act.

III.

Enter an order, pursuant to Section 20(e) of the Securities Act, 15 U.S.C. §

77t(e), and Section 21(d)(2) of the Exchange Act, 15 U.S.C. § 78u(d)(2),

prohibiting Defendant Lewis from acting as an officer or director of any issuer that

has a class of securities registered pursuant to Section 12 of the Exchange Act, 15

U.S.C. § 781, or that is required to file reports pursuant to Section 15(d) of the

Exchange Act, 15 U.S.C. § 78o(d).

IV.

Order each Defendant to disgorge all ill-gotten gains from his or its illegal

conduct, together with prejudgment interest thereon.

V.

Order the Defendants to pay civil penalties under Section 20(d) of the

Securities Act, 15 U.S.C. § 77t(d), and Section 21(d)(3) of the Exchange Act, 15

U.S.C. § 78u(d)(3), and additionally order Defendant NCC to pay a civil penalty

under Section 42(e)(1) of the Investment Company Act, 25 U.S.C. § 80a-41(e)(1).

VI.

Retain jurisdiction of this action in accordance with the principles of equity

and the Federal Rules of Civil Procedure in order to implement and carry out the 

terms of all orders and decrees that may be entered, or to entertain any suitable

application or motion for additional relief within the jurisdiction of this Court.

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VII.

Grant such other and further relief as this Court may determine to be just and

necessary.

DATED: August 24, 2004 _______________________
Jessica Rigley Marren
Attorney for Plaintiff
Securities and Exchange Commission