Moving to contain damage arising from the growing mutual fund trading scandal and questions about its founder’s past, Security Trust said Monday that CEO Grant Seeger, 41, resigned over the weekend.
The abrupt departure reflects intense pressure on Security Trust by the bank’s customers, including 2,500 retirement-plan administrators who have entrusted it with $13 billion in investment assets for safekeeping, and by the bank’s federal regulators, which are combing through its records this week.
A Seeger family member said Seeger had no comment on the resignation, tendered Sunday afternoon in a brief letter. He was replaced by interim CEO Thomas Plumb, 44, who represents California merchant bank Castle Creek Capital and its partnership, Capital Investment Management Holding, which owns 100% of Security Trust.
In an interview, Plumb acknowledged that Security Trust had been battered by questions raised by New York Attorney General Eliot Spitzer last month about the company’s alleged role in facilitating illegal after-hours trades of mutual funds for at least three hedge funds, including Canary Capital Management.
Security Trust has not been charged and denies wrongdoing in that case. And Plumb did not link Seeger’s departure directly to the criminal investigation. But he said the company needs to ”remove ourselves from that shadow” to stem a potential flight of assets from its financial custodial business. ”We can use words, but action is better,” Plumb said. He added, ”We have not seen significant attrition (of assets) to this point.”
In addition, USA TODAY reported last week that Security Trust and its co-founders Seeger and Hayden Holland, who left the company in 1998, engaged in legal skirmishes for nearly a decade with investors and state bank examiners over allegations of fraud and negligence. Plumb said the USA TODAY story ”raised questions — very significant questions — about individuals, activities and behaviors.”
Security Trust’s clients and business partners say they are pressing the company to address the allegations. The bank also is under pressure from the hundreds of mutual fund companies whose shares it trades for its clients, processing the paperwork after markets close.
Rick Meigs, president of 401khelpcenter.com, said, ”Security Trust has more exposure — in terms of business impact — than do any of the mutual funds involved. They appear to be the facilitator in these transactions. And without them, the transactions could not have been made.”
Attorney Ted Siedle, who investigates pension fraud, says retirement plans need to ”develop due-diligence systems that take into account all the potential for fraud and wrongdoing involved in the many layers of mutual fund and 401(k) administration.”
