The Canary trades involving Phoenix-based STC were an issue in recent days following an announcement that New York State Attorney General Eliot Spitzer was probing the issue of alleged improper trading practices, specifically situations where mutual-fund shares were purchased after the market close at that day’s closing price; and market timing, which involves taking advantage of market-moving events after the close (See Spitzer Fund Abuse Probe Pumps Out More Subpoenas).
In a letter distributed to clients and business partners, STC CEO Grant Seeger also revealed that Canary officials had given his firm “written assurance” that Canary had received trade instructions before market close. “ As you know, a trust company’s role in late-day trading involves the processing of trades after close of market; the decisions on all trades are made prior to market close,” Seeger wrote. The STC chief also repeated his reminder that Spitzer did not charge his firm with wrongdoing.
Seeger said STC knew Canary was carrying out market timing trades, but pointed out that the practice “while discouraged, is not illegal.”
An Outside Investigation
Finally, Seeger told clients in the letter that the audit committee of STC’s board plans to hire an outside consultant to examine the Canary trades as well as the firm’s internal trading processes. “This will help us insure that we continue to provide all clients the highest level of service possible, with full attention to fiduciary and regulatory principles and responsibilities,” the STC chief said.
“I fully recognize the importance of the trust you have placed in us. We are committed to preserving your faith in us by continuing to service you and your clients with integrity and innovation,” Seeger wrote. “The assets that you have placed with us remain secure, and we are conducting business as usual.”
STC’s involvement with the Spitzer probe has already cost the firm at least one client. On Monday GoldK, a Waltham, Massachusetts-based firm, which provides a recordkeeping platform for third-party administrators, announced that it was ending its STC relationship “to protect the interests of (our) clients and their retirement plan participants.” (See GoldK Sheds STC Relationship).
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