Pension Services Company Ordered Closed by March 31
New York Attorney General Eliot Spitzer's office filed criminal charges against the company and three former executives. The case, which was coordinated with federal regulators, is the first to focus on third parties that process trade orders for pensions and other retirement plans, and it is the toughest legal action taken so far in the mutual fund industry investigation.
"This is one of those cases where the criminal conduct emanated from the top and the magnitude of the wrongdoing requires that this company no longer be put in a position to manage the trust accounts of millions of Americans," Spitzer told Reuters.
Phoenix-based Security Trust administers $13 billion in retirement and pension assets for about 2,300 retirement plans.
Spitzer’s office charged former Chief Executive Grant Seeger, former President William Kenyon and former Senior Vice President Nicole McDermott with grand larceny, falsifying business records and securities fraud. Frederick Hafetz, the lawyer representing Seeger, said, “Mr. Seeger did nothing illegal and we look forward to vindicating him in court.”
Under an order issued by the U.S. Department of the Treasury’s Office of the Comptroller of the Currency, which regulates corporate trustees, the firm must be out of business by March 31. Security Trust CEO Thomas Plumb said the company would transfer the retirement plans to other trustees.
The Securities and Exchange Commission (SEC) filed civil securities fraud charges against Security Trust and the three former executives.
According to statements from the SEC and Spitzer's office, the defendants helped certain hedge funds make illegal after-market trades by "disguising" the trades among orders made by Security Trust's client pension plans.
The SEC accused Security Trust of helping "hundreds of late trades in nearly 400 different mutual funds" over more than three years. Late trading allows favored investors to capitalize on share prices that have not been affected by events that occur after the market closes. The SEC also charged Security Trust with violating a "forward pricing" rule, which requires that trades placed after the market closes be done at the next day's price.