- The Washington Times - Tuesday, November 25, 2003

ALBANY, N.Y. (AP) — Three former top executives at Security Trust Co. were charged yesterday with acting as middlemen for hedge funds in a mutual funds late-trading scheme that cost investors $1 million.

Those charged with felonies by New York Attorney General Eliot Spitzer include the chief executive of the Phoenix-based company, which processes mutual fund trade orders for pension plans and retirement systems.

No charges were filed against the firm because action yesterday by the U.S. Treasury Department’s Office of the Comptroller of Currency will force Security Trust to be dissolved by March 31, Mr. Spitzer said. “The company is history.”

The Securities and Exchange Commission simultaneously filed civil charges against the former executives and Security Trust.

Security Trust made about $5.8 million from the improper deals with hedge funds over a three-year period, the SEC said.

A message seeking comment from Security Trust was not immediately returned.

Mr. Spitzer, Democrat, who has made no secret of his desire to be governor of New York, charged former Security Trust Chief Executive Officer Grant D. Seeger, former President William A. Kenyon and former Senior Vice President of Corporate Services Nicole McDermott with grand larceny, falsifying business records and securities fraud.

The most serious charges carry prison terms of eight to 25 years.

An attorney for Mr. Seeger didn’t immediately respond to a request for comment. Telephone numbers for Mr. Kenyon and Miss McDermott weren’t immediately available.

Security Trust, which administers $13 billion in assets for 2,300 pension and retirement systems, is the latest financial institution to be accused of improper trading. Putnam Investments and Pilgrim Baxter also have been accused of wrongdoing, as have a handful of individuals.

Charges had been widely expected against Security Trust after it was mentioned in Mr. Spitzer’s Sept. 3 complaint accusing hedge fund Canary Capital LLC of improper fund trading. Mr. Seeger resigned Oct. 6, and Canary agreed to pay $40 million to settle the charges, but admitted no wrongdoing.

Canary’s Edward Stern is cooperating with Mr. Spitzer as part of that settlement.

“Stern has been absolutely essential to our making these cases,” Mr. Spitzer said. “The first settlement that we entered with him … should be viewed as the primary reason we’ve been able to make these cases.”

He wouldn’t discuss Jay Marran, identified in the complaint as providing some information on Security Trust, his employer.

“The cases will continue,” Mr. Spitzer said. “But more important, I think, will be the effort to reform mutual fund governance that will result from this.”

Yesterday’s charges accuse the defendants of processing trades by hedge funds hours after the market closed at 4 p.m., allowing them to profit on after-hours news. Late trading allows a favored investor to take advantage of any events after the market closes that are not reflected in the fund’s closing price. Regular investors at that hour would have had to chance the next day’s closing price, since mutual funds price just once per day.


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