“A hedge-fund manager who once worked for Canary Capital Partners LLC and its managing principal, Edward J. Stern, is emerging as a key figure in an investigation by the New York attorney general into whether investment funds improperly traded mutual-fund shares, people familiar with the matter say,” writes Henny Sender in today’s Wall Street Journal.

“The fund manager, Andrew Goodwin, is the founder of a number of investment firms, including Goodwin Trading Corp., a New York-based hedge fund. He departed Canary in late 2001. He has told investigators about the practice of ‘late trades’ — buying and selling fund shares after the market had closed and then trading them again the next day for a profit, the people with knowledge of the probe say. It is illegal for investors to trade fund shares, at that day’s price, after the market has closed and then profit by quickly flipping them the following day.”

“Mr. Goodwin’s lawyer, Steven Post, said only that his client isn’t under investigation by New York Attorney General Eliot Spitzer. Mr. Goodwin sent an e-mail to his investors last week saying ‘we do not engage in ‘late trading.” ‘ He also denied having any contractual arrangement with any mutual-fund manager or trade-clearing broker, ‘which would give us after-hour trading capability not generally available to other mutual fund investors.’ “

“Separately, the New York attorney general has subpoenaed as many as 11 other hedge funds, including Bermuda-based Tewksbury Capital Management, which manages $3.5 billion in assets, seeking information about late trades and the practice of frequent in-and-out ‘timing trades’ at mutual funds, which take advantage of, say, differences between closing prices of stocks overseas and the mutual fund’s later closing price. The attorney general’s office also has sought information from, among others, Haidar Capital Management LLC, a hedge fund that manages about $80 million, and Samaritan Asset Management, which is run by a former stock broker, Edward Owens, the people familiar with the matter say.”

“While timing trades aren’t illegal, they are barred by most mutual-fund companies because they can be costly to other fund investors. Tewksbury President Matthew Tewksbury, whom Institutional Investor magazine says received 2002 pay of $48 million — which would make him one of the world’s highest-paid fund managers — didn’t return calls for comment. Calls to Haidar President Said Haidar and his attorney weren’t returned. Mr. Owens, Samaratin’s president, didn’t return a call for comment.”

“The actions underscore that the scope of the burgeoning investigation is broadening to include additional hedge funds, which are loosely regulated investment pools for wealthy individuals and institutions. Mr. Stern, who has neither admitted nor denied wrongdoing, agreed last week to pay $40 million to settle charges brought by the New York attorney general that he engaged in such late trades and timing trades.”