CIBC Subsidiaries Settle SEC Late Trading, Market Timing Charges
"Are we trying to skirt some law here?"
Yet again, e-mails provided the color in a July 20 SEC order against CIBC World Markets and Canadian Imperial Holdings (CIHI), each a subsidiary of Canadian Imperial Bank of Commerce. The SEC alleged that CIHI financed hedge funds with the knowledge that financing would be used to late trade and deceptively market time mutual funds. The SEC also alleged that the financing violated applicable margin and credit rules.
In addition, the SEC claimed that a group of World Marketís registered reps actively hide their customersí trading activity from mutual funds. According to the SEC, the reps would allow customers to fax proposed fund trades to the RRs before the market close and then phone in post-4 pm instructions to the RRs on whether or not to proceed with the trades. The SEC alleged that the reps opened multiple accounts for customers and used multiple RR numbers to disguise the identity of their customersí accounts.
According to the SEC, firm higher-ups were aware of this activity. The order cited a CIHI memo in which company officials emphasized a need for a "high level of confidentiality" given the "stealth nature of the business." New entities, not containing the "Canadian" name, were created, "in order to reduce CIHIís ownership perception [of mutual funds] to the Ďstreet,í" according to one CIHI business manager quoted in the SECís order.
The SEC quoted one rep, who allegedly apologized to the World Marketís operations staff for the additional work created by the trading activity. "We obviously arenít purposefully trying to create more work for you guys by splitting these trades up," said the broker. "We are trying to break them up so the fund companies do not think these are market timing accounts, even though they are."
World Marketís director of mutual fund operations replied: "I understand your methods."
To settle the SECís charges, the two subsidiaries agreed to disgorge $100 million and pay a civil penalty of $25 million.