Feb. 4–Former CIBC managing director Paul Flynn was arrested outside his Larchmont home yesterday and led off in handcuffs to face criminal charges in the expanding probe of improper mutual fundtrading.
Flynn, 46, pleaded not guilty to five felony counts in Manhattan criminal court, surrendered his passport and left after posting $750,000 bail. He was the seventh person arrested in the fund probes.
Attorney General Eliot Spitzer, who ordered the arrest, said Flynn stole more than $1 million from mutual funds by helping to finance illegal trading schemes for Samaritan Asset Management and Canary Capital Partners.
Canary is a hedge fund run by Edward Stern, son of local billionaire Leonard Stern. Stern has not been charged.
If found guilty, the sandy-haired, preppy Flynn faces up to 25 years in state prison.
“This is the first case against someone who arranged financing so that late traders and timers could conduct illegal activities,” Spitzer said. “This prosecution sends the message that those who arrange funding for illegal trading will be held accountable.”
Spitzer is investigating more than a dozen companies for alleged connection to late trading. Back in September, he announced a probe of illegal fund trading at Bank of America, Bank One, Janus and Strong.
Investors who engage in late trading are buying or selling mutual fund shares after the markets close but get to use 4 p.m. prices. This allows them to cash in on after-hours news ahead of other investors.
Market “timing” is an investment technique involving fast in-and-out trading of mutual fund shares.
The others already charged in the scandal include former Bank of America broker Theodore Sihpol, former Millennium Partners trader Steven Markovitz, ex-Security Trust CEO Grant Seeger, and James Connelly Jr., an exec at Fred Alger Management.
All pleaded guilty except for Sihpol and Flynn.
Connelly is the only one so far to get jail time. He pleaded guilty to trying to obstruct Spitzer’s investigation, and a New York state judge gave him one to three years in prison.
The Securities and Exchange Commission also sued Flynn yesterday.
Neighbors in Flynn’s enclave adjacent to the tony Bonnie Briar Country Club were shocked by his arrest.
“Paul’s a very nice guy. He’s always been honest and upstanding with me. I can’t believe he’d do anything wrong,” said one neighbor who asked to remain anonymous.
A source familiar with Spitzer’s probe said Flynn’s arrest “isn’t the end of [the attorney general’s] interest in CIBC.”
Flynn’s supervisor Robert Deutsche, left CIBC in January, a company spokesman said.
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