NEW YORK (AP) — Regulators plan to file civil and criminal charges against Security Trust Co. on Tuesday for improper mutual fund trading, according to a source familiar with the investigation.
The charges by the Securities and Exchange Commission and New York Attorney General Eliot Spitzer accuse the Phoenix-based company of facilitating abusive trading by hedge funds seeking to make money in mutual funds, said the source, who spoke on condition of anonymity.
Additionally, the U.S. Treasury’s office of the Comptroller of Currency is expected to file paperwork seeking to put the company out of business because of the alleged wrongdoing.
A message seeking comment from the company was not immediately returned.
Security Trust is the latest in a series of financial institutions to be accused in an improper trading scandal. Putnam Investments and Pilgrim Baxter have also been accused of wrongdoing, as have a handful of individuals.
According to the source, the state of New York is expected to file criminal charges against the company’s management for allowing late trading of funds. It is illegal to trade funds after the market closes at 4 p.m. Eastern time.
The SEC’s charges are expected to be civil, and center on alleged market timing — quick, in-and-out trading that is not illegal, but is prohibited by many funds because the practice skims profits from longer-term shareholders. Both the management and the company will be accused of wrongdoing.
Security Trust provides administrative services to pension funds and retirement plans.
Charges had been widely expected against the company after it was mentioned in a complaint filed earlier this year by Spitzer accusing hedge fund Canary Capital LLC of improper fund trading.
According to that complaint, Security Trust “gave Canary the ability to trade hundreds of additional mutual funds as late as 9 p.m. New York time. So profitable was this opportunity that STC ultimately demanded, and received, a percentage of Canary’s winnings.”
Canary agreed to pay $40 million to settle the charges, but admitted no wrongdoing.
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On the Web:
http://www.securitytrustco.com
