A seventh individual has pleaded guilty to criminal charges as a result of New York Attorney General Eliot Spitzer’s investigation of illegal trading in the mutual fund industry that began two years ago.

A broker at a New York brokerage firm pleaded guilty to state criminal charges in connection with the ongoing investigation of illegal late trading, Spitzer says. So far negotiated settlements with a dozen firms have brought industry reform and returned more than US$3.1 billion to investors.

According to the Attorney General’s criminal charges and a related civil complaint from the U.S. Securities and Exchange Commission against Scott Christian (29-year-old broker employed at Trautman Wasserman & Co.), the broker engaged in illegal late trading of mutual funds on behalf of several large hedge fund clients.

Christian pleaded guilty in New York County Supreme Court to a class E felony, which is punishable by a maximum term of one to four years in state prison. He is cooperating with the attorney general’s office.

The SEC’s civil complaint alleges that Christian executed tens of thousands of “late trades” for hedge fund customers and engaged in deceptive conduct to evade restrictions that mutual fund companies sought to place on his customers’ frequent, short-term trading of mutual fund shares. As well, the SEC claims Christian created false records to conceal late trading. These allegations have not been proven.

The SEC is seeking a permanent injunction against future violations, disgorgement plus prejudgment interest and civil penalties. The SEC’s investigation is continuing.