In re Veras Capital Master Fund

 
 
                                                 UNITED                                                 STATES OF AMERICA 
                                                                     Before                                                                     the                                                                     
 SECURITIES AND EXCHANGE COMMISSION 
 
SECURITIES ACT OF 1933 
Release No. 8646 / December 22, 2005 
 
SECURITIES EXCHANGE ACT OF 1934 
Release No. 53011 / December 22, 2005 
 
INVESTMENT ADVISERS ACT OF 1940 
Release No. 2466 / December 22, 2005 
 
INVESTMENT COMPANY ACT OF 1940 
Release No. 27197 / December 22, 2005 
 
ADMINISTRATIVE PROCEEDING 
File No. 3-12133  
 
 
In the Matter of 
 
Veras Capital Master Fund, 
VEY Partners Master Fund, 
Veras Investment Partners, LLC, 
Kevin D. Larson, and 
James R. McBride,  
 
Respondents. 
 
 
 
 
 
ORDER INSTITUTING 
ADMINISTRATIVE AND CEASE-AND-
DESIST PROCEEDINGS PURSUANT TO 
SECTION 8A OF THE SECURITIES ACT 
OF 1933, SECTION 21C OF THE 
SECURITIES EXCHANGE ACT OF 1934, 
SECTION 203(f) OF THE INVESTMENT 
ADVISERS ACT OF 1940, AND SECTIONS 
9(b) AND 9(f) OF THE INVESTMENT 
COMPANY ACT OF 1940, MAKING 
FINDINGS, AND IMPOSING REMEDIAL 
SANCTIONS AND A CEASE-AND-DESIST 
ORDER 
  
I. 
 
 The Securities and Exchange Commission (“Commission”) deems it appropriate and in the 
public interest that public administrative and cease-and-desist proceedings be, and hereby are, 
instituted pursuant to Section 8A of the Securities Act of 1933 (“Securities Act”), Section 21C of 
the Securities Exchange Act of 1934 (“Exchange Act”), and Section 9(f) of the Investment 
Company Act of 1940 (“Investment Company Act”) against Veras Capital Master Fund (“VCM”), 
VEY Partners Master Fund (“VEY”), Veras Investment Partners, LLC (“VIP”), Kevin D. Larson 
(“Larson”), and James R. McBride (“McBride”) (collectively, “Respondents”) and pursuant to 

 
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Section 203(f) of the Investment Advisers Act of 1940 (“Advisers Act”) and Section 9(b) of the 
Investment Company Act against Larson and McBride. 
 
II. 
 
 In anticipation of the institution of these proceedings, Respondents have submitted Offers 
of Settlement (the “Offers”) which the Commission has determined to accept.  Solely for the 
purpose of these proceedings and any other proceedings brought by or on behalf of the 
Commission, or to which the Commission is a party, and without admitting or denying the findings 
herein, except as to the Commission’s jurisdiction over them and over the subject matter of these 
proceedings, Respondents consent to the entry of this Order Instituting Administrative and Cease-
and-Desist Proceedings, Making Findings, and Imposing Remedial Sanctions and a Cease-and-
Desist Order Pursuant to Section 8A of the Securities Act of 1933, Section 21C of the Securities 
Exchange Act of 1934, Section 203(f) of the Investment Advisers Act of 1940, and Sections 9(b) 
and 9(f) of the Investment Company Act of 1940 (“Order”), as set forth below.   
 
III. 
 
 On the basis of this Order and Respondents’ Offers, the Commission finds
1
 that: 
 
Summary 
 
1. This case involves a fraudulent market timing and late trading scheme by two 
hedge funds, VCM and VEY (“the Veras hedge funds”), their investment adviser, VIP, and its 
fund traders, Larson and McBride.  From January 2002 through September 2003 (“the relevant 
time”), Respondents used deceptive techniques to continue market timing in mutual funds that 
previously had detected and restricted, or that otherwise would not have permitted, the Veras hedge 
funds’ trading.  During the relevant time, Respondents also traded mutual fund shares after 4:00 
p.m. Eastern Time (“ET”) and received the same day’s price.  By virtue of their conduct, 
Respondents caused violations of and willfully violated and aided and abetted violations of the 
antifraud and mutual fund pricing provisions of the federal securities laws.  As a result of 
Respondents’ conduct, the value of the mutual funds was diluted, in the aggregate, by 
approximately $35.5 million.   
Respondents 
2. 
Veras Capital Master Fund is a Texas general partnership that operated as one of 
the Veras hedge funds during the relevant time.  The VCM general partners are three feeder funds:  
(1) Veras Capital Partners, LP, (2) Veras Capital Partners (QP), LP, and (3) Veras Capital Partners 
Offshore, Ltd.  The general partner to each feeder fund is the Veras Investment Group, LP (VIG), 
whose general partner is VIP and whose limited partners include Larson and McBride.  The limited 
partners to each feeder fund are the Veras hedge fund investors.    
                                                
 
1
   The findings herein are made pursuant to Respondents’ Offers of Settlement and are not binding on any other 
person or entity in this or any other proceeding. 

 
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3. 
VEY Partners Master Fund is a Texas general partnership that operated as one of 
the Veras hedge funds from approximately May 2002 through September 2003.  The VEY general 
partners are two feeder funds: (1) Veras Enhanced Yield (QP), LP, and (2) Veras Enhanced Yield 
Offshore, Ltd.  The general partner to each feeder fund is VIG, whose general partner is VIP and 
whose limited partners include Larson and McBride.  The limited partners to each feeder fund are 
the Veras hedge fund investors.   
4. 
Veras Investment Partners, LLC, a Texas limited liability company, provided 
investment advisory services to the Veras hedge funds.  Larson and McBride each are owners and 
managing members of VIP.  VIP is not registered with the Commission, although VIP was 
registered with the Texas Securities Board as an investment adviser.  On February 24, 2004, the 
Texas Securities Board revoked its registration by consent. 
5. 
Kevin D. Larson is 38 years old and resides in Sugar Land, Texas.  Larson is an 
owner and managing member of VIP.  During the relevant time, Larson was registered with the 
Texas Securities Board as an investment adviser representative.  On February 24, 2004, the Texas 
Securities Board revoked Larson’s registration by consent.  Larson is licensed by the National 
Association of Securities Dealers (“NASD”) as a Uniform Investment Advisor (Series 65).   
6. 
James R. McBride is 39 years old and resides in Sugar Land, Texas.  McBride is 
an owner and managing member of VIP.  During the relevant time, McBride was registered with 
the Texas Securities Board as an investment adviser representative.  On February 24, 2004, the 
Texas Securities Board revoked McBride’s registration by consent. 
Background 
7. Larson and McBride created the Veras hedge funds primarily to market time 
publicly traded securities.  Larson and McBride, who both had substantial experience with 
securities trading, controlled the Veras hedge funds throughout their 20-month existence through 
VIP.  For its services, VIP was credited with management and performance fees, a portion of 
which was paid out or allocated to Larson and McBride based on their ownership interests in VIP.   
8. Larson and McBride organized the Veras hedge funds as a series of partnerships, as 
outlined above.  The Veras hedge funds developed proprietary trading models to trade mutual 
funds in certain sectors such as high yield, international, large cap, domestic, municipal bonds, and 
government bonds.  The proprietary trading models utilized historical trading data, among other 
things, to give “signals” indicating that the Veras hedge funds should buy or sell.  At their peak, the 
Veras hedge funds held more than a billion dollars in assets.   
Market Timing 
9. Market timing includes: (i) frequent buying and selling of shares of the same 
mutual fund or (ii) 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 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 can cause 

 
4
the targeted mutual fund to incur costs to accommodate frequent buying and selling of shares by 
the market timer. 
10. Respondents executed a high volume of trades in mutual funds.  However, many of 
the mutual funds in which they traded either prohibited market timing or limited the frequency of 
trades in order to prevent market timing.  During the relevant time, numerous mutual funds 
complained to intermediary institutions about the Veras hedge funds’ market timing activities or 
blocked the Veras hedge funds’ accounts from future trading. 
11. To evade the mutual funds’ trading restrictions, Respondents employed deceptive 
techniques to hide the identity of the Veras hedge funds from the mutual funds in which they 
traded.  One such deceptive technique was the creation of legal entities with names unrelated to 
“Veras.”  During the relevant time, Larson and McBride created eight such entities.   
12. During the relevant time, Respondents used these entities to open multiple accounts 
at multiple broker dealers.  Respondents traded through these accounts to, among other things, 
evade the restrictions imposed by the mutual funds on trading.  Respondents also used the multiple 
accounts to divide trades into smaller dollar amounts that would more likely evade detection by the 
mutual funds.    
13. Respondents knew or were reckless in not knowing that their deceptive market 
timing techniques were fraudulent within the meaning of Section 17(a) of the Securities Act and 
Section 10(b) of the Exchange Act and Rule 10b-5 thereunder. 
Late Trading
 
14. Rule 22c-1(a) under the Investment Company Act requires registered open-end 
investment companies (“mutual funds”), persons designated in such funds’ prospectuses as 
authorized to consummate transactions in any such security, their principal underwriters, and 
dealers in the funds’ securities to sell and redeem fund shares at a price based on the current net 
asset value (“NAV”) next computed after receipt of an order to buy or redeem.  Late trading refers 
to the act of executing trades in a mutual fund’s shares after the time as of which the mutual fund 
has calculated its NAV in a manner that allows the trade to receive that day’s net asset value per 
share, rather than the next day’s net asset value per share.  Most mutual funds calculate their daily 
net asset value as of the close of the major United States securities exchanges and markets 
(normally 4:00 p.m. ET).  Although Respondents were not themselves subject to Rule 22c-1, 
persons subject to that Rule may not price trades in violation of its provisions. 
15. During the relevant time, Respondents were permitted to submit late trades to 
dealers in mutual fund shares and to two mutual fund companies.  These entities routinely allowed 
Respondents to communicate orders to purchase and sell mutual fund shares after 4:00 p.m. ET at 
that day’s NAV.  In some instances, Respondents communicated orders to these entities before 
4:00 p.m. ET and then confirmed, altered, or cancelled the orders after 4:00 p.m. ET.  By executing 
Respondents’ late trades, these entities violated Section 17(a) of the Securities Act, Section 10(b) 
of the Exchange Act and Rule 10b-5 thereunder, and Rule 22c-1. 

 
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16. In some instances, Respondents used information obtained after 4:00 p.m. ET to 
make their trading decisions.  In fact, one of the Veras hedge funds’ proprietary trading models 
incorporated information obtained from the futures market between 4:00 p.m. ET and 4:15 p.m. ET 
to generate a signal to buy or sell.  Thus, Respondents’ late trading arrangements allowed them to 
purchase or sell mutual fund shares at prices set as of the market close, such close having occurred 
before they obtained aftermarket information and made some of their trading decisions.   
17. Respondents knew or were reckless in not knowing that the late trading 
arrangements in which they participated were fraudulent within the meaning of Section 17(a) of 
the Securities Act and Section 10(b) of the Exchange Act and Rule 10b-5 thereunder. 
Violations
 
18. As a result of the conduct described in paragraphs 10-12 above, Respondents 
willfully violated Section 17(a) of the Securities Act, and Section 10(b) of the Exchange Act and 
Rule 10b-5 thereunder.   
19. As a result of the conduct described in paragraphs 14-17 above, Respondents 
willfully aided and abetted and caused another’s violations of Section 17(a) of the Securities Act, 
and Section 10(b) of the Exchange Act and Rule 10b-5 thereunder. 
20. As a result of the conduct described in Paragraphs 14-17 above, Respondents 
willfully aided and abetted and caused violations of Rule 22c-1(a) under the Investment Company 
Act by certain mutual funds, persons designated in such funds’ prospectuses as authorized to 
consummate transactions in any such security, their principal underwriters, or dealers in the funds’ 
securities, which requires such persons to sell and redeem fund shares at a price based on the 
current NAV next computed after receipt of an order to buy or redeem. 
Cooperation and Undertakings
 
21. In determining to accept the Offers, the Commission considered the cooperation 
afforded by Respondents to the Commission staff and Respondents’ undertaking of ongoing 
cooperation.  Respondents shall continue to cooperate fully with the Commission in any and all 
investigations, litigation, or other proceedings relating to or arising from the matters described in 
the Order.  In connection with such cooperation, Respondents have undertaken:  
a. To produce promptly, without service of a notice or subpoena, any and all documents and 
other information requested by the Commission’s staff; 
   
b. To use their best efforts to cause their current employees who were employed at the time 
of the alleged conduct described in the Order to be interviewed by the Commission’s staff 
at such times as the staff reasonably may direct; 
   
c. To use their best efforts to cause their current employees who were employed at the time 
of the alleged conduct described in the Order to appear and testify truthfully and 
completely without service of a notice or subpoena in such investigations, depositions, 

 
6
hearings or trials as may be requested by the Commission’s staff, at such times as the 
staff reasonably may direct; and 
   
d. That in connection with any testimony of Respondents to be conducted at deposition, 
hearing or trial pursuant to a notice or subpoena, Respondents: 
   
i. Agree that any such notice or subpoena for Respondents’ appearance and 
testimony may be served by regular mail as follows:  (a) for VCM, VEY, or VIP 
on Paul A. Leder, Esq., Richards Spears Kibbe & Orbe LLP, 1775 Eye Street 
NW, Washington, DC 20006; (b) for Kevin D. Larson on Guy Petrillo, Esq., 
Dechert LLP, 30 Rockefeller Plaza, NY, NY 10112-2200; and (c) for James 
McBride on Steven G. Kobre, Esq., Kobre & Kim LLP, 800 Third Avenue, New 
York, NY 10022;  
ii. Agree that any such notice or subpoena for Respondents’ appearance and 
testimony in an action pending in a United States District Court may be served, 
and may require testimony, beyond the territorial limits imposed by the Federal 
Rules of Civil Procedure. 
In determining whether to accept the Offer, the Commission has considered these 
undertakings.
 
22. Respondents undertake pursuant to Rule 1101 of the Commission’s Rules on Fair 
Fund and Disgorgement Plans [17. C.F.R. § 201.1101], and in consultation with the staff of the 
Commission, to develop a plan to distribute the disgorgement and civil penalties as provided for in 
the Order (“Distribution Plan”), which will be submitted to the Commission within 60 days for 
notice in accordance with Rule 1103 [17 C.F.R. § 201.1103].  Following a Commission order 
approving a Distribution Plan, as provided in Rule 1104 [17 C.F.R. § 201.1104], Respondents shall 
take all necessary and appropriate steps to assist the Commission-appointed Administrator of the 
final Distribution Plan.  Respondents shall bear the costs of administering and implementing the 
final Distribution Plan on a joint and several basis. 
 
IV. 
 
 In view of the foregoing, the Commission deems it appropriate and in the public interest to 
impose the sanctions agreed to in Respondents’ Offers. 
 
Accordingly, pursuant to Section 8A of the Securities Act, Section 21C of the Exchange 
Act, Section 203(f) of the Advisers Act, and Sections 9(b) and 9(f) of the Investment Company 
Act, it is hereby ORDERED that: 
 
A. Respondents cease and desist from committing or causing any violations and any 
future violations of Section 17(a) of the Securities Act, Section 10(b) of the Exchange Act and Rule 
10b-5 thereunder and from causing any violations and any future violations of Rule 22c-1(a) under 
the Investment Company Act; 
 

 
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B. Larson and McBride be, and hereby are barred from association with any investment 
adviser, and are prohibited from serving or acting as an employee, officer, director, member of an 
advisory board, investment adviser or depositor of, or principal underwriter for, a registered 
investment company or affiliated person of such investment adviser, depositor, or principal 
underwriter, with the right to reapply for association in all capacities after eighteen months to the 
appropriate self-regulatory organization, or if there is none, to the Commission; 
 
 C. Any reapplication for association by Larson or McBride will be subject to the 
applicable laws and regulations governing the reentry process, and reentry may be conditioned 
upon a number of factors, including, but not limited to, the satisfaction of any or all of the 
following:  (a) any disgorgement ordered against them, whether or not the Commission has fully or 
partially waived payment of such disgorgement; (b) any arbitration award related to the conduct 
that served as the basis for the Commission order; (c) any self-regulatory organization arbitration 
award to a customer, whether or not related to the conduct that served as the basis for the 
Commission order; and (d) any restitution order by a self-regulatory organization, whether or not 
related to the conduct that served as the basis for the Commission order. 
 
 D. Respondents shall pay, within ten days of the entry of this Order, on a joint and 
several basis, $35,554,903 in disgorgement and $645,585 in prejudgment interest.  Larson and 
McBride shall each pay, within ten days of the entry of this Order, a civil money penalty in the 
amount of $750,000, for a total payment of $37,700,488. 
 
  1. Such payments shall be: (A) made by United States postal money order, 
certified check, bank cashier’s check or bank money order; (B) made payable to the 
Securities and Exchange Commission; (C) hand-delivered or mailed to the Office of 
Financial Management, Securities and Exchange Commission, Operations Center, 6432 
General Green Way, Alexandria, Stop 0-3, VA 22312; and (D) submitted under cover letter 
that identifies VCM, VEY, VIP, Larson, and McBride as Respondents in these 
proceedings, the file number of these proceedings, a copy of which cover letter and money 
order or check shall be sent to Robert J. Burson, Senior Associate Regional Director, 
Division of Enforcement, Securities and Exchange Commission, 175 W. Jackson 
Boulevard, Suite 900, Chicago, IL 60604.  
 
  2. There shall be, pursuant to Section 308(a) of the Sarbanes-Oxley Act of 
2002, a Fair Fund established for the funds described in Section IV.D., which shall be 
distributed to the affected mutual funds.  Regardless of whether any such Fair Fund 
distribution is made, amounts ordered to be paid as civil money penalties pursuant to this 
Order shall be treated as penalties paid to the government for all purposes, including all tax 
purposes.  To preserve the deterrent effect of the civil penalty, Larson and McBride agree 
that they shall not, in any Related Investor Action, benefit from any offset or reduction of 
any investor’s claim by the amount of any Fair Fund distribution to such investor in this 
proceeding that is proportionately attributable to the civil penalty paid by Larson and 
McBride (“Penalty Offset”).  If the court in any Related Investor Action grants such an 
offset or reduction, Larson and McBride agree that they shall, within 30 days after entry of 
a final order granting the offset or reduction, notify the Commission’s counsel in this action 

 
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and pay the amount of the Penalty Offset to the United States Treasury or to a Fair Fund, as 
the Commission directs.  Such a payment shall not be deemed an additional civil penalty 
and shall not be deemed to change the amount of the civil penalty imposed in this 
proceeding.  For purposes of this paragraph, a “Related Investor Action” means a private 
damages action brought against Larson and McBride by or on behalf of one or more 
investors based on substantially the same facts as set forth in the Order in this proceeding. 
 
 E. Within ten days of the entry of the Commission order approving a Distribution 
Plan, referenced in Section III.22. above, the Commission shall direct the remittance of 
disgorgement, interest and civil penalties referenced in Section IV.D. above and any interest 
thereon for distribution in accordance with the approved final Distribution Plan. 
 
F. Respondents shall comply with the undertakings enumerated in Paragraph 22 above. 
 
 G. Other Obligations and Requirements.  Nothing in this Order shall relieve 
Respondents of any other applicable legal obligation or requirement, including any rule adopted by 
the Commission subsequent to this Order. 
 
            By            the            Commission.            
 
 
 
       Jonathan G. Katz 
       Secretary 
 

UNITED STATES OF AMERICA 
 Before the 
 SECURITIES AND EXCHANGE COMMISSION 
 
SECURITIES ACT OF 1933 
Release No. 8646 / December 22, 2005 
 
SECURITIES EXCHANGE ACT OF 1934 
Release No. 53011 / December 22, 2005 
 
INVESTMENT ADVISERS ACT OF 1940 
Release No. 2466 / December 22, 2005 
 
INVESTMENT COMPANY ACT OF 1940 
Release No. 27197 / December 22, 2005 
 
ADMINISTRATIVE PROCEEDING 
File No. 3-12133  
 
 
In the Matter of 

 
Veras Capital Master Fund, 
VEY Partners Master Fund, 
Veras Investment Partners, LLC, 
Kevin D. Larson, and 
James R. McBride,  

 
Respondents. 
 
 
 
 

 
ORDER INSTITUTING 
ADMINISTRATIVE AND CEASE-AND-
DESIST PROCEEDINGS PURSUANT TO 
SECTION 8A OF THE SECURITIES ACT 
OF 1933, SECTION 21C OF THE 
SECURITIES EXCHANGE ACT OF 1934, 
SECTION 203(f) OF THE INVESTMENT 
ADVISERS ACT OF 1940, AND SECTIONS 
9(b) AND 9(f) OF THE INVESTMENT 
COMPANY ACT OF 1940, MAKING 
FINDINGS, AND IMPOSING REMEDIAL 
SANCTIONS AND A CEASE-AND-DESIST 
ORDER 

  
I. 

 
 The Securities and Exchange Commission (“Commission”) deems it appropriate and in the 
public interest that public administrative and cease-and-desist proceedings be, and hereby are, 
instituted pursuant to Section 8A of the Securities Act of 1933 (“Securities Act”), Section 21C of 
the Securities Exchange Act of 1934 (“Exchange Act”), and Section 9(f) of the Investment 
Company Act of 1940 (“Investment Company Act”) against Veras Capital Master Fund (“VCM”), 
VEY Partners Master Fund (“VEY”), Veras Investment Partners, LLC (“VIP”), Kevin D. Larson 
(“Larson”), and James R. McBride (“McBride”) (collectively, “Respondents”) and pursuant to 



 2

Section 203(f) of the Investment Advisers Act of 1940 (“Advisers Act”) and Section 9(b) of the 
Investment Company Act against Larson and McBride. 
 

II. 
 
 In anticipation of the institution of these proceedings, Respondents have submitted Offers 
of Settlement (the “Offers”) which the Commission has determined to accept.  Solely for the 
purpose of these proceedings and any other proceedings brought by or on behalf of the 
Commission, or to which the Commission is a party, and without admitting or denying the findings 
herein, except as to the Commission’s jurisdiction over them and over the subject matter of these 
proceedings, Respondents consent to the entry of this Order Instituting Administrative and Cease-
and-Desist Proceedings, Making Findings, and Imposing Remedial Sanctions and a Cease-and-
Desist Order Pursuant to Section 8A of the Securities Act of 1933, Section 21C of the Securities 
Exchange Act of 1934, Section 203(f) of the Investment Advisers Act of 1940, and Sections 9(b) 
and 9(f) of the Investment Company Act of 1940 (“Order”), as set forth below.   
 

III. 
 
 On the basis of this Order and Respondents’ Offers, the Commission finds1 that: 
 

Summary 
 

1. This case involves a fraudulent market timing and late trading scheme by two 
hedge funds, VCM and VEY (“the Veras hedge funds”), their investment adviser, VIP, and its 
fund traders, Larson and McBride.  From January 2002 through September 2003 (“the relevant 
time”), Respondents used deceptive techniques to continue market timing in mutual funds that 
previously had detected and restricted, or that otherwise would not have permitted, the Veras hedge 
funds’ trading.  During the relevant time, Respondents also traded mutual fund shares after 4:00 
p.m. Eastern Time (“ET”) and received the same day’s price.  By virtue of their conduct, 
Respondents caused violations of and willfully violated and aided and abetted violations of the 
antifraud and mutual fund pricing provisions of the federal securities laws.  As a result of 
Respondents’ conduct, the value of the mutual funds was diluted, in the aggregate, by 
approximately $35.5 million.   

Respondents 

2. Veras Capital Master Fund is a Texas general partnership that operated as one of 
the Veras hedge funds during the relevant time.  The VCM general partners are three feeder funds:  
(1) Veras Capital Partners, LP, (2) Veras Capital Partners (QP), LP, and (3) Veras Capital Partners 
Offshore, Ltd.  The general partner to each feeder fund is the Veras Investment Group, LP (VIG), 
whose general partner is VIP and whose limited partners include Larson and McBride.  The limited 
partners to each feeder fund are the Veras hedge fund investors.    

                                                 
1   The findings herein are made pursuant to Respondents’ Offers of Settlement and are not binding on any other 
person or entity in this or any other proceeding. 



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3. VEY Partners Master Fund is a Texas general partnership that operated as one of 
the Veras hedge funds from approximately May 2002 through September 2003.  The VEY general 
partners are two feeder funds: (1) Veras Enhanced Yield (QP), LP, and (2) Veras Enhanced Yield 
Offshore, Ltd.  The general partner to each feeder fund is VIG, whose general partner is VIP and 
whose limited partners include Larson and McBride.  The limited partners to each feeder fund are 
the Veras hedge fund investors.   

4. Veras Investment Partners, LLC, a Texas limited liability company, provided 
investment advisory services to the Veras hedge funds.  Larson and McBride each are owners and 
managing members of VIP.  VIP is not registered with the Commission, although VIP was 
registered with the Texas Securities Board as an investment adviser.  On February 24, 2004, the 
Texas Securities Board revoked its registration by consent. 

5. Kevin D. Larson is 38 years old and resides in Sugar Land, Texas.  Larson is an 
owner and managing member of VIP.  During the relevant time, Larson was registered with the 
Texas Securities Board as an investment adviser representative.  On February 24, 2004, the Texas 
Securities Board revoked Larson’s registration by consent.  Larson is licensed by the National 
Association of Securities Dealers (“NASD”) as a Uniform Investment Advisor (Series 65).   

6. James R. McBride is 39 years old and resides in Sugar Land, Texas.  McBride is 
an owner and managing member of VIP.  During the relevant time, McBride was registered with 
the Texas Securities Board as an investment adviser representative.  On February 24, 2004, the 
Texas Securities Board revoked McBride’s registration by consent. 

Background 

7. Larson and McBride created the Veras hedge funds primarily to market time 
publicly traded securities.  Larson and McBride, who both had substantial experience with 
securities trading, controlled the Veras hedge funds throughout their 20-month existence through 
VIP.  For its services, VIP was credited with management and performance fees, a portion of 
which was paid out or allocated to Larson and McBride based on their ownership interests in VIP.   

8. Larson and McBride organized the Veras hedge funds as a series of partnerships, as 
outlined above.  The Veras hedge funds developed proprietary trading models to trade mutual 
funds in certain sectors such as high yield, international, large cap, domestic, municipal bonds, and 
government bonds.  The proprietary trading models utilized historical trading data, among other 
things, to give “signals” indicating that the Veras hedge funds should buy or sell.  At their peak, the 
Veras hedge funds held more than a billion dollars in assets.   

Market Timing 

9. Market timing includes: (i) frequent buying and selling of shares of the same 
mutual fund or (ii) 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 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 can cause 



 4

the targeted mutual fund to incur costs to accommodate frequent buying and selling of shares by 
the market timer. 

10. Respondents executed a high volume of trades in mutual funds.  However, many of 
the mutual funds in which they traded either prohibited market timing or limited the frequency of 
trades in order to prevent market timing.  During the relevant time, numerous mutual funds 
complained to intermediary institutions about the Veras hedge funds’ market timing activities or 
blocked the Veras hedge funds’ accounts from future trading. 

11. To evade the mutual funds’ trading restrictions, Respondents employed deceptive 
techniques to hide the identity of the Veras hedge funds from the mutual funds in which they 
traded.  One such deceptive technique was the creation of legal entities with names unrelated to 
“Veras.”  During the relevant time, Larson and McBride created eight such entities.   

12. During the relevant time, Respondents used these entities to open multiple accounts 
at multiple broker dealers.  Respondents traded through these accounts to, among other things, 
evade the restrictions imposed by the mutual funds on trading.  Respondents also used the multiple 
accounts to divide trades into smaller dollar amounts that would more likely evade detection by the 
mutual funds.    

13. Respondents knew or were reckless in not knowing that their deceptive market 
timing techniques were fraudulent within the meaning of Section 17(a) of the Securities Act and 
Section 10(b) of the Exchange Act and Rule 10b-5 thereunder. 

Late Trading 

14. Rule 22c-1(a) under the Investment Company Act requires registered open-end 
investment companies (“mutual funds”), persons designated in such funds’ prospectuses as 
authorized to consummate transactions in any such security, their principal underwriters, and 
dealers in the funds’ securities to sell and redeem fund shares at a price based on the current net 
asset value (“NAV”) next computed after receipt of an order to buy or redeem.  Late trading refers 
to the act of executing trades in a mutual fund’s shares after the time as of which the mutual fund 
has calculated its NAV in a manner that allows the trade to receive that day’s net asset value per 
share, rather than the next day’s net asset value per share.  Most mutual funds calculate their daily 
net asset value as of the close of the major United States securities exchanges and markets 
(normally 4:00 p.m. ET).  Although Respondents were not themselves subject to Rule 22c-1, 
persons subject to that Rule may not price trades in violation of its provisions. 

15. During the relevant time, Respondents were permitted to submit late trades to 
dealers in mutual fund shares and to two mutual fund companies.  These entities routinely allowed 
Respondents to communicate orders to purchase and sell mutual fund shares after 4:00 p.m. ET at 
that day’s NAV.  In some instances, Respondents communicated orders to these entities before 
4:00 p.m. ET and then confirmed, altered, or cancelled the orders after 4:00 p.m. ET.  By executing 
Respondents’ late trades, these entities violated Section 17(a) of the Securities Act, Section 10(b) 
of the Exchange Act and Rule 10b-5 thereunder, and Rule 22c-1. 



 5

16. In some instances, Respondents used information obtained after 4:00 p.m. ET to 
make their trading decisions.  In fact, one of the Veras hedge funds’ proprietary trading models 
incorporated information obtained from the futures market between 4:00 p.m. ET and 4:15 p.m. ET 
to generate a signal to buy or sell.  Thus, Respondents’ late trading arrangements allowed them to 
purchase or sell mutual fund shares at prices set as of the market close, such close having occurred 
before they obtained aftermarket information and made some of their trading decisions.   

17. Respondents knew or were reckless in not knowing that the late trading 
arrangements in which they participated were fraudulent within the meaning of Section 17(a) of 
the Securities Act and Section 10(b) of the Exchange Act and Rule 10b-5 thereunder. 

Violations 

18. As a result of the conduct described in paragraphs 10-12 above, Respondents 
willfully violated Section 17(a) of the Securities Act, and Section 10(b) of the Exchange Act and 
Rule 10b-5 thereunder.   

19. As a result of the conduct described in paragraphs 14-17 above, Respondents 
willfully aided and abetted and caused another’s violations of Section 17(a) of the Securities Act, 
and Section 10(b) of the Exchange Act and Rule 10b-5 thereunder. 

20. As a result of the conduct described in Paragraphs 14-17 above, Respondents 
willfully aided and abetted and caused violations of Rule 22c-1(a) under the Investment Company 
Act by certain mutual funds, persons designated in such funds’ prospectuses as authorized to 
consummate transactions in any such security, their principal underwriters, or dealers in the funds’ 
securities, which requires such persons to sell and redeem fund shares at a price based on the 
current NAV next computed after receipt of an order to buy or redeem. 

Cooperation and Undertakings 

21. In determining to accept the Offers, the Commission considered the cooperation 
afforded by Respondents to the Commission staff and Respondents’ undertaking of ongoing 
cooperation.  Respondents shall continue to cooperate fully with the Commission in any and all 
investigations, litigation, or other proceedings relating to or arising from the matters described in 
the Order.  In connection with such cooperation, Respondents have undertaken:  

a. To produce promptly, without service of a notice or subpoena, any and all documents and 
other information requested by the Commission’s staff; 
   

b. To use their best efforts to cause their current employees who were employed at the time 
of the alleged conduct described in the Order to be interviewed by the Commission’s staff 
at such times as the staff reasonably may direct; 
   

c. To use their best efforts to cause their current employees who were employed at the time 
of the alleged conduct described in the Order to appear and testify truthfully and 
completely without service of a notice or subpoena in such investigations, depositions, 



 6

hearings or trials as may be requested by the Commission’s staff, at such times as the 
staff reasonably may direct; and 
   

d. That in connection with any testimony of Respondents to be conducted at deposition, 
hearing or trial pursuant to a notice or subpoena, Respondents: 
   

i. Agree that any such notice or subpoena for Respondents’ appearance and 
testimony may be served by regular mail as follows:  (a) for VCM, VEY, or VIP 
on Paul A. Leder, Esq., Richards Spears Kibbe & Orbe LLP, 1775 Eye Street 
NW, Washington, DC 20006; (b) for Kevin D. Larson on Guy Petrillo, Esq., 
Dechert LLP, 30 Rockefeller Plaza, NY, NY 10112-2200; and (c) for James 
McBride on Steven G. Kobre, Esq., Kobre & Kim LLP, 800 Third Avenue, New 
York, NY 10022;  

ii. Agree that any such notice or subpoena for Respondents’ appearance and 
testimony in an action pending in a United States District Court may be served, 
and may require testimony, beyond the territorial limits imposed by the Federal 
Rules of Civil Procedure. 

In determining whether to accept the Offer, the Commission has considered these 
undertakings. 

22. Respondents undertake pursuant to Rule 1101 of the Commission’s Rules on Fair 
Fund and Disgorgement Plans [17. C.F.R. § 201.1101], and in consultation with the staff of the 
Commission, to develop a plan to distribute the disgorgement and civil penalties as provided for in 
the Order (“Distribution Plan”), which will be submitted to the Commission within 60 days for 
notice in accordance with Rule 1103 [17 C.F.R. § 201.1103].  Following a Commission order 
approving a Distribution Plan, as provided in Rule 1104 [17 C.F.R. § 201.1104], Respondents shall 
take all necessary and appropriate steps to assist the Commission-appointed Administrator of the 
final Distribution Plan.  Respondents shall bear the costs of administering and implementing the 
final Distribution Plan on a joint and several basis. 
 

IV. 
 

 In view of the foregoing, the Commission deems it appropriate and in the public interest to 
impose the sanctions agreed to in Respondents’ Offers. 
 

Accordingly, pursuant to Section 8A of the Securities Act, Section 21C of the Exchange 
Act, Section 203(f) of the Advisers Act, and Sections 9(b) and 9(f) of the Investment Company 
Act, it is hereby ORDERED that: 

 
A. Respondents cease and desist from committing or causing any violations and any 

future violations of Section 17(a) of the Securities Act, Section 10(b) of the Exchange Act and Rule 
10b-5 thereunder and from causing any violations and any future violations of Rule 22c-1(a) under 
the Investment Company Act; 

 



 7

B. Larson and McBride be, and hereby are barred from association with any investment 
adviser, and are prohibited from serving or acting as an employee, officer, director, member of an 
advisory board, investment adviser or depositor of, or principal underwriter for, a registered 
investment company or affiliated person of such investment adviser, depositor, or principal 
underwriter, with the right to reapply for association in all capacities after eighteen months to the 
appropriate self-regulatory organization, or if there is none, to the Commission; 
 
 C. Any reapplication for association by Larson or McBride will be subject to the 
applicable laws and regulations governing the reentry process, and reentry may be conditioned 
upon a number of factors, including, but not limited to, the satisfaction of any or all of the 
following:  (a) any disgorgement ordered against them, whether or not the Commission has fully or 
partially waived payment of such disgorgement; (b) any arbitration award related to the conduct 
that served as the basis for the Commission order; (c) any self-regulatory organization arbitration 
award to a customer, whether or not related to the conduct that served as the basis for the 
Commission order; and (d) any restitution order by a self-regulatory organization, whether or not 
related to the conduct that served as the basis for the Commission order. 
 
 D. Respondents shall pay, within ten days of the entry of this Order, on a joint and 
several basis, $35,554,903 in disgorgement and $645,585 in prejudgment interest.  Larson and 
McBride shall each pay, within ten days of the entry of this Order, a civil money penalty in the 
amount of $750,000, for a total payment of $37,700,488. 
 
  1. Such payments shall be: (A) made by United States postal money order, 

certified check, bank cashier’s check or bank money order; (B) made payable to the 
Securities and Exchange Commission; (C) hand-delivered or mailed to the Office of 
Financial Management, Securities and Exchange Commission, Operations Center, 6432 
General Green Way, Alexandria, Stop 0-3, VA 22312; and (D) submitted under cover letter 
that identifies VCM, VEY, VIP, Larson, and McBride as Respondents in these 
proceedings, the file number of these proceedings, a copy of which cover letter and money 
order or check shall be sent to Robert J. Burson, Senior Associate Regional Director, 
Division of Enforcement, Securities and Exchange Commission, 175 W. Jackson 
Boulevard, Suite 900, Chicago, IL 60604.  

 
  2. There shall be, pursuant to Section 308(a) of the Sarbanes-Oxley Act of 

2002, a Fair Fund established for the funds described in Section IV.D., which shall be 
distributed to the affected mutual funds.  Regardless of whether any such Fair Fund 
distribution is made, amounts ordered to be paid as civil money penalties pursuant to this 
Order shall be treated as penalties paid to the government for all purposes, including all tax 
purposes.  To preserve the deterrent effect of the civil penalty, Larson and McBride agree 
that they shall not, in any Related Investor Action, benefit from any offset or reduction of 
any investor’s claim by the amount of any Fair Fund distribution to such investor in this 
proceeding that is proportionately attributable to the civil penalty paid by Larson and 
McBride (“Penalty Offset”).  If the court in any Related Investor Action grants such an 
offset or reduction, Larson and McBride agree that they shall, within 30 days after entry of 
a final order granting the offset or reduction, notify the Commission’s counsel in this action 



 8

and pay the amount of the Penalty Offset to the United States Treasury or to a Fair Fund, as 
the Commission directs.  Such a payment shall not be deemed an additional civil penalty 
and shall not be deemed to change the amount of the civil penalty imposed in this 
proceeding.  For purposes of this paragraph, a “Related Investor Action” means a private 
damages action brought against Larson and McBride by or on behalf of one or more 
investors based on substantially the same facts as set forth in the Order in this proceeding. 

 
 E. Within ten days of the entry of the Commission order approving a Distribution 
Plan, referenced in Section III.22. above, the Commission shall direct the remittance of 
disgorgement, interest and civil penalties referenced in Section IV.D. above and any interest 
thereon for distribution in accordance with the approved final Distribution Plan. 
 

F. Respondents shall comply with the undertakings enumerated in Paragraph 22 above. 
 
 G. Other Obligations and Requirements.  Nothing in this Order shall relieve 
Respondents of any other applicable legal obligation or requirement, including any rule adopted by 
the Commission subsequent to this Order. 
 
 By the Commission. 
 
 
 
       Jonathan G. Katz 
       Secretary 
 


	UNITED STATES OF AMERICA
	In the Matter of
	Veras Capital Master Fund,
	Respondents.



	Respondents
	22. Respondents undertake pursuant to Rule 1101 of the Commi
	IV.