The Wall Street Journal reported Wednesday that CIBC was expected to agree to a penalty of more than $100 million in connection with the allegations leveled by the Securities and Exchange Commission (SEC) and New York state Attorney General Eliot Spitzer.
According to unidentified Wall Street Journal sources, regulators plan to allege that CIBC arranged financing for hedge-fund clients, who engaged in abusive fund trading of mutual funds, including late trading. Regulators will allege that CIBC benefited from the arrangement because the bank earned a return on the financing it provided.
Among the customers that CIBC arranged financing for was hedge fund Canary Capital Partners LLC, according to the Journal sources. Canary, who has played a key role in the ongoing state and federal probe, has settled civil charges that it engaged in improper trading of mutual-fund shares (See Spitzer Fund Abuse Probe Pumps Out More Subpoenas ).
Last year, the SEC and Spitzer’s office filed fraud and grand larceny charges against Paul Flynn, a former executive director of equity-arbitrage trading at an investment-banking unit of CIBC (See Former CIBC Exec Nabbed for Fund Scandal Involvement ). In its complaint, the SEC said Flynn arranged for hedge funds to receive financing from a CIBC unit, Canadian Imperial Holdings Inc., and “utilized several strategies” to reduce the chance that mutual funds would detect the hedge funds’ abusive trading practices. Flynn has pleaded not guilty to the criminal charges.
State and federal authorities have been carrying out the broad fund probe that has focused on market timing and late trading as well a certain sales practices.