CIBC Facing Suit Over Fund TradingJan 29, 2004 | Ottawa Business Journal Canadian Imperial Bank of Commerce is facing lawsuits from the U.S. Securities and Exchange Commission and pit bull New York State Attorney-General Eliot Spitzer over improper mutual fund trading, according to media reports.
Anonymous sources quoted by the New York Times and the Canadian Press say civil charges could come against the Canadian bank within the next couple of weeks and one former CIBC executive may be singled out.
A spokesman for CIBC did confirm with CP that an investigation into CIBC's trading practices is underway and the bank is fully co-operating.
The investigation is part of massive probe into the U.S. mutual fund industry and the controversial practice of "market timing" trading.
The news comes only a month after CIBC agreed to pay an $80-million settlement over its alleged role in the massive accounted fraud carried out at Enron Corp.
CIBC spokesman Stephen Forbes said Wednesday that CIBC has stopped lending money to hedge funds that engage in market-timing activity. Over the past couple of months, a number of executives at the bank's New York office who were involved with hedge fund financing have left the bank.
Those executives include managing director Robert Deutsch, lawyer Keith Wellner and traders Paul Flynn and Jeffery Haas.
Market timing is not illegal, but is outlawed by many firms and strictly policed by others. Market timing occurs when traders frequently buy and sell in a mutual fund's shares to take advantage of minor pricing discrepancies throughout the day. The cumulative effect of such constant trading is high administrative fees for investors that reduce their returns.
Late trading is the other practice under scrutiny and this one is strictly illegal. Late traders buy and sell shares after a mutual fund price is set each afternoon. The goal is take advantage of after-market international news that can affect the fund's valuation when it is priced the next day.