Security Trust Co. will shut down — making it the first corporate casualty in the mutual fund trading scandal, a federal banking agency said Tuesday.
The Office of the Comptroller of the Currency (OCC), which oversees national banks, said that STC has agreed to cease operation by March 31. Phoenix-based STC has 134 employees. It administers $13 billion in assets for 2,300 pension plans and other trust accounts. STC processes mutual fund trades for retirement plans.
Following the resignation of the firm’s CEO last month and allegations of mutual fund trading irregularities, the OCC required STC to correct internal problems and shore up its finances. But with the firm facing regulatory charges and lawsuits, the agency decided it should close, says Daniel Stipano, deputy chief counsel for the OCC.
Also Tuesday, the Securities and Exchange Commission accused STC and three former top executives of civil fraud. And New York State Attorney General Eliot Spitzer filed criminal charges against the three executives, accusing them of facilitating a mutual fund late-trading scheme that cost investors more than $1 million. Spitzer charged ex-CEO Grant Seeger, ex-president William Kenyon and former senior vice president Nicole McDermott with grand larceny, securities fraud and falsifying records. The maximum sentence for the grand larceny charges alone is 8 1/3 to 25 years.
Lawyers for Seeger and Kenyon did not return calls. McDermott denies any wrongdoing, her civil lawyer Don Martin says. He said she complained about the trading irregularities to superiors.
The company said it is working with regulators to achieve an orderly dissolution.
In September, Spitzer settled charges with a hedge fund, Canary Capital Partners, that it engaged in illegal trading practices with several mutual fund firms. The complaint also implicated STC in a late-trading and market-timing scheme.
Late trading is buying or selling mutual funds after the 4 p.m. close and still getting the pre-4 p.m. price, which is illegal. Market timers engage in rapid trading, often in international funds, to exploit time zone differences. It is not illegal, but it might violate a fund company’s rules or prospectus.
Among other things, the SEC accused the three executives of helping Canary to conceal its market-timing activities from the mutual funds.
As a result of the STC-orchestrated scheme, Canary made about $85 million in profit over three years and STC received more than $5.8 million in compensation, the SEC said in its complaint.
