SEC v. Security Trust Company, N.A.; Grant D. Seeger; William A. Kenyon; and Nicole McDermott, No. LR-18479, District of Arizona — Press Release
raw: Security Trust Company, N.A., Grant D. Seeger, William A. Kenyon, and Nicole McDermott
Security Trust Company, N.A., Grant D. Seeger, William A. Kenyon, and Nicole McDermott, No. LR-18479
summary
The SEC charged Security Trust Company, N.A., its former CEO Grant D. Seeger, president William A. Kenyon, and senior vice president Nicole McDermott with facilitating fraudulent late trading and market timing for Edward J. Stern’s Canary Capital hedge funds between 2000 and 2003, using deceptive practices to bypass mutual fund rules and collect $5.8 million in excessive fees, resulting in civil fraud charges under securities laws and demands for disgorgement, penalties, and injunctions.
paragraph
The SEC alleged that Security Trust Company (STC) and its executives—Grant D. Seeger, William A. Kenyon, and Nicole McDermott—facilitated hundreds of late trades for Edward J. Stern’s Canary Capital hedge funds between May 2000 and July 2003, falsely representing them as retirement plan accounts to execute after-hours trades at the day’s closing net asset value. STC employed deceptive market timing tactics including 'shotgun' accounts, 'omnibus' accounts, tax ID masking, and 'piggybacking' on legitimate TPA clients to evade detection, while charging up to a 1% custodial fee and 4% profit sharing, totaling approximately $5.8 million in illicit compensation. The defendants are charged with violating Section 17(a) of the Securities Act, Section 10(b) and Rule 10b-5 of the Exchange Act, Rule 22c-1 prohibiting late trading, and Section 37 of the Investment Company Act, with the SEC seeking disgorgement, civil penalties, and permanent injunctions.
narrative
The SEC, in coordination with the New York Attorney General and the Office of the Comptroller of the Currency, filed civil fraud charges against Security Trust Company, N.A. (STC), its former CEO Grant D. Seeger, president William A. Kenyon, and senior vice president Nicole McDermott for enabling fraudulent late trading and market timing by Edward J. Stern’s Canary Capital hedge funds from May 2000 to July 2003. STC falsely represented the hedge funds as retirement plan accounts to justify after-hours trades submitted as late as 9:00 p.m. EST—despite knowing they were not TPA clients—allowing the hedge funds to profit from post-market price movements at the day’s closing net asset value. To conceal market timing, STC deployed multiple deceptive methods: the 'shotgun' approach opened dozens of accounts to test which funds ignored timing; the 'omnibus' method rotated trades across five accounts; the 'taxpayer ID' method masked trades using STC’s own ID; and the 'piggybacking' scheme attached hedge fund trades to unsuspecting TPA clients’ accounts. STC received approximately $5.8 million in compensation, including a 1% custodial fee and 4% profit sharing—far exceeding the standard 0.10% charged to legitimate retirement plan clients. The defendants are charged with violating Section 17(a) of the Securities Act, Section 10(b) and Rule 10b-5 of the Exchange Act, Rule 22c-1 prohibiting late trading, and Section 37 of the Investment Company Act, which prohibits theft of investment company assets. The SEC is seeking disgorgement of ill-gotten gains, civil penalties, and permanent injunctions against Seeger, Kenyon, and McDermott to prevent future misconduct.
Classified unregistered-securities(confidence 100%). EDGAR detection: forms Form D/S-1· recall 41% / precision 30%. detection rule →
Statutes
Section 17(a) of the Securities ActSection 10(b) of the Securities Exchange ActSection 22(c) of the Investment Company ActSection 37 of the Investment Company ActRule 10b-5Rule 22c-1
Parties
Securities and Exchange CommissionSecurity Trust Company, N.A.Grant D. SeegerWilliam A. KenyonNicole McDermott
Keywords
hedge fundsfundsstchedgemutualmutual fundmarketmutual fundstradesseegermcdermottfundlate tradingmarket timingmarket close
Exhibits & Attached Documents (1)
Extracted insights
Dollar amounts 1
- $5.80M $5.8 million $1M–$10M
Entities 3
- agency the securities and exchange commission
- court u.s. district court for the district of arizona
- organization U.S. District Court for the District of Arizona
Triples 7
- The Securities and Exchange Commission announced civil fraud charges against Phoenix, Arizona-based Security Trust Company, N.A. (STC) and its former chief executive officer, president, and senior vice president
- Security Trust Company, N.A. faced civil fraud charges
- Grant D. Seeger named as defendant in SEC v. Security Trust Company, N.A.
- William A. Kenyon named as defendant in SEC v. Security Trust Company, N.A.
- Nicole McDermott named as defendant in SEC v. Security Trust Company, N.A.
- SEC filed Civil Action No. CV 03-2323 PHX JWS in U.S. District Court for the District of Arizona
- U.S. District Court for the District of Arizona heard SEC v. Security Trust Company, N.A.
PDF (from attached: complaint)
Text layers
Extracted body text (5,882c)
SEC v. Security Trust Company, N.A., Grant D. Seeger, William A. Kenyon and Nicole McDermott, (U.S. District Court for the District of Arizona, Civil Action No. CV 03-2323 PHX JWS) The Securities and Exchange Commission today announced civil fraud charges against Phoenix, Arizona-based Security Trust Company, N.A. (STC) and its former chief executive officer, president, and senior vice president, for facilitating and participating in fraudulent mutual fund late trading and market timing schemes by a group of related hedge funds. The SEC's action was brought contemporaneously with related actions by the New York Attorney General and the Office of the Comptroller of the Currency, with whom the SEC has coordinated its efforts in this matter. The SEC also acknowledges the cooperation of the U.S. Department of Labor, Employee Benefits Security Administration. The SEC's complaint charges STC, an uninsured national banking association that, among other services, effects mutual fund trades for participants in retirement plans and processes data regarding those trades for the plans' third party administrators (TPAs); STC's former chief executive officer, Grant D. Seeger, age 40, of Phoenix, Arizona; its former president, William A. Kenyon, age 57, of Phoenix, Arizona; and its former senior vice president for corporate services, Nicole McDermott, age 34, who resides near Phoenix, Arizona. The SEC's action, filed this morning in United States District Court in Phoenix, alleges the following: Late Trading: "Late trading" refers to the practice of placing orders to buy or sell mutual fund shares after market close at 4:00 p.m. EST, but at the mutual fund's net asset value (NAV), or price, determined at the market close. Late trading enables the trader to profit from market events that occur after 4:00 p.m. EST but that are not reflected in that day's price. From May 2000 to July 2003, STC facilitated hundreds of mutual fund trades in nearly 400 different mutual funds by several hedge funds controlled by Edward J. Stern, known as the Canary Capital funds. Approximately 99% of these trades were transmitted to STC after the 4:00 p.m. EST market close; 82% of the trades were sent to STC between 6:00 p.m. and 9:00 p.m. EST. The hedge funds' late trading was effected by STC through its electronic trading platform, which was designed primarily for processing trades by TPAs for retirement plans. At the direction of Seeger and McDermott, STC repeatedly misrepresented to mutual funds that the hedge funds were a retirement plan account, even though STC, Seeger, Kenyon, and McDermott knew that the hedge funds were not a TPA or a retirement plan account. Mutual funds expected that retirement plans and their TPAs required several hours after the market closed to process trades submitted by plan participants before market close. In contrast, the hedge funds had no such business purpose for submitting their own trades as late as five hours after market close. Market Timing: "Market timing" refers to the practice of short term buying and selling of mutual fund shares in order to exploit inefficiencies in mutual fund pricing. During its three-year relationship with the Canary hedge funds, STC and the other defendants employed various methods to attempt to conceal the hedge funds' market timing activities from mutual funds, including the following: "Shotgun" method -- STC employees opened accounts for the Canary hedge funds with numerous mutual funds to be traded through STC. The hedge funds then effected trades through these accounts to determine which funds would not detect or actively police timing. "Omnibus" method -- STC opened five omnibus accounts for the Canary hedge funds at STC through which the hedge funds' trades were rotated in an attempt to evade detection by the mutual funds. "Taxpayer ID" method -- STC opened mirror accounts for the five omnibus accounts using STC's taxpayer identification number. This approach sought to impede efforts by mutual fund companies to detect market timers by their tax ID numbers. "Piggybacking" method -- Devised by Seeger and implemented by McDermott, this method involved STC setting up a sub-account within the account of one of STC's TPA clients and attaching the Canary hedge funds' mutual fund trades to the trades of this client without its knowledge. The mutual funds that the hedge funds traded through piggybacking had previously rejected the hedge funds for market timing, and the hedge funds hoped they could continue to trade these funds under the name of another STC client. The SEC's complaint alleges that STC had a compensation arrangement with the hedge funds that included as large as a 1% custodial fee (STC charged most of its TPA clients a custodial fee of just .10%) and a 4% profit sharing arrangement with respect to most of the hedge funds' trades. STC received approximately $5.8 million in direct compensation from the hedge funds. STC, Seeger, Kenyon, and McDermott are charged with violating the antifraud provisions of the federal securities laws, Section 17(a) of the Securities Act of 1933 and Section 10(b) of the Securities Exchange Act of 1934 and Rule 10b-5 thereunder. STC is also charged with violating Rule 22c-1, promulgated under Section 22(c) of the Investment Company Act of 1940. This provision prohibits the purchase or sale of mutual fund shares except at a price based on the current NAV of such shares that is next calculated after receipt of a buy or sell order. Seeger is also charged with violating Section 37 of the Investment Company Act, which prohibits stealing the assets of a registered investment company. The SEC is seeking an accounting, disgorgement, and penalties from all of the defendants and a judgment of permanent injunction against Seeger, Kenyon, and McDermott. See the Complaint in this matter. SEC Complaint in this matter
OCR text (5,882c · plain-text · 99% conf)
SEC v. Security Trust Company, N.A., Grant D. Seeger, William A. Kenyon and Nicole McDermott, (U.S. District Court for the District of Arizona, Civil Action No. CV 03-2323 PHX JWS) The Securities and Exchange Commission today announced civil fraud charges against Phoenix, Arizona-based Security Trust Company, N.A. (STC) and its former chief executive officer, president, and senior vice president, for facilitating and participating in fraudulent mutual fund late trading and market timing schemes by a group of related hedge funds. The SEC's action was brought contemporaneously with related actions by the New York Attorney General and the Office of the Comptroller of the Currency, with whom the SEC has coordinated its efforts in this matter. The SEC also acknowledges the cooperation of the U.S. Department of Labor, Employee Benefits Security Administration. The SEC's complaint charges STC, an uninsured national banking association that, among other services, effects mutual fund trades for participants in retirement plans and processes data regarding those trades for the plans' third party administrators (TPAs); STC's former chief executive officer, Grant D. Seeger, age 40, of Phoenix, Arizona; its former president, William A. Kenyon, age 57, of Phoenix, Arizona; and its former senior vice president for corporate services, Nicole McDermott, age 34, who resides near Phoenix, Arizona. The SEC's action, filed this morning in United States District Court in Phoenix, alleges the following: Late Trading: "Late trading" refers to the practice of placing orders to buy or sell mutual fund shares after market close at 4:00 p.m. EST, but at the mutual fund's net asset value (NAV), or price, determined at the market close. Late trading enables the trader to profit from market events that occur after 4:00 p.m. EST but that are not reflected in that day's price. From May 2000 to July 2003, STC facilitated hundreds of mutual fund trades in nearly 400 different mutual funds by several hedge funds controlled by Edward J. Stern, known as the Canary Capital funds. Approximately 99% of these trades were transmitted to STC after the 4:00 p.m. EST market close; 82% of the trades were sent to STC between 6:00 p.m. and 9:00 p.m. EST. The hedge funds' late trading was effected by STC through its electronic trading platform, which was designed primarily for processing trades by TPAs for retirement plans. At the direction of Seeger and McDermott, STC repeatedly misrepresented to mutual funds that the hedge funds were a retirement plan account, even though STC, Seeger, Kenyon, and McDermott knew that the hedge funds were not a TPA or a retirement plan account. Mutual funds expected that retirement plans and their TPAs required several hours after the market closed to process trades submitted by plan participants before market close. In contrast, the hedge funds had no such business purpose for submitting their own trades as late as five hours after market close. Market Timing: "Market timing" refers to the practice of short term buying and selling of mutual fund shares in order to exploit inefficiencies in mutual fund pricing. During its three-year relationship with the Canary hedge funds, STC and the other defendants employed various methods to attempt to conceal the hedge funds' market timing activities from mutual funds, including the following: "Shotgun" method -- STC employees opened accounts for the Canary hedge funds with numerous mutual funds to be traded through STC. The hedge funds then effected trades through these accounts to determine which funds would not detect or actively police timing. "Omnibus" method -- STC opened five omnibus accounts for the Canary hedge funds at STC through which the hedge funds' trades were rotated in an attempt to evade detection by the mutual funds. "Taxpayer ID" method -- STC opened mirror accounts for the five omnibus accounts using STC's taxpayer identification number. This approach sought to impede efforts by mutual fund companies to detect market timers by their tax ID numbers. "Piggybacking" method -- Devised by Seeger and implemented by McDermott, this method involved STC setting up a sub-account within the account of one of STC's TPA clients and attaching the Canary hedge funds' mutual fund trades to the trades of this client without its knowledge. The mutual funds that the hedge funds traded through piggybacking had previously rejected the hedge funds for market timing, and the hedge funds hoped they could continue to trade these funds under the name of another STC client. The SEC's complaint alleges that STC had a compensation arrangement with the hedge funds that included as large as a 1% custodial fee (STC charged most of its TPA clients a custodial fee of just .10%) and a 4% profit sharing arrangement with respect to most of the hedge funds' trades. STC received approximately $5.8 million in direct compensation from the hedge funds. STC, Seeger, Kenyon, and McDermott are charged with violating the antifraud provisions of the federal securities laws, Section 17(a) of the Securities Act of 1933 and Section 10(b) of the Securities Exchange Act of 1934 and Rule 10b-5 thereunder. STC is also charged with violating Rule 22c-1, promulgated under Section 22(c) of the Investment Company Act of 1940. This provision prohibits the purchase or sale of mutual fund shares except at a price based on the current NAV of such shares that is next calculated after receipt of a buy or sell order. Seeger is also charged with violating Section 37 of the Investment Company Act, which prohibits stealing the assets of a registered investment company. The SEC is seeking an accounting, disgorgement, and penalties from all of the defendants and a judgment of permanent injunction against Seeger, Kenyon, and McDermott. See the Complaint in this matter. SEC Complaint in this matter