Two Enter Guilty Pleas in New York STC Charges

August 30, 2005 ( - Two executives who were among the first to be entangled in the ongoing mutual fund industry scandal probe pleaded guilty Tuesday to felony charges in a New York state courtroom.

An online announcement by Attorney General Eliot Spitzer said that Grant Seeger, the former chief executive of Security Trust Company (STC), entered the pleas to grand larceny and to violating the Martin Act.  Former STC President William Kenyon likewise pleaded guilty to a Martin Act violation. Both men received five years probation and a $50,000 fine, according to Reuters.

The Spitzer announcement said that Seeger admitted developing a procedure by which two hedge fund clients, Canary Capital (See  Spitzer Fund Abuse Probe Pumps Out More Subpoenas ) and Samaritan Asset Management, disguised their market timing and late trading activities from various mutual fund families by attaching, or “piggy-backing,” their trades to those of STC’s retirement plan clients. According to Spitzer, they did this by “disguising” the illegal trades as pension plan orders. This deceived the mutual funds into making the trades, according to prosecutors. STC had been custodian and trustee for 2,300 retirement plans with $13 billion in assets.

According to his plea, Kenyon also admitted that he oversaw the development of the software that allowed this trading activity and that, once the software was developed, he was responsible for implementing the trading strategy with the two hedge fund clients.

In November 2003,  Spitzer charged that three Security Trust Co. N.A., (STC) executives including Seeger and Kenyon were guilty of “pervasive misconduct” in helping in the late trading of mutual funds and the “larceny” of more than $1 million (See  STC Ex-Execs Hit With Criminal Charges; Regulators Force Dissolution ).

The state/federal fund industry investigation has focused on market timing and late trading transactions as well as certain sales practices.