WASHINGTON -- The Office of the Comptroller of the Currency
announced today that it has issued an order requiring Security Trust Company,
Phoenix, Ariz., to begin a process that will result in the orderly dissolution
of the bank by March 31, 2004.
The OCC’s order requires the bank to take steps to ensure
that the trust accounts and investment plans it administers experience the
minimum possible disruption. Today’s order follows an OCC enforcement action on
October 29 that froze the assets of the bank’s controlling shareholder and
placed restrictions on the assets of the bank. Those assets will be used to
protect the interests of the bank’s client investment funds and trust account
holders.
The issues involving Security Trust came to light in
September, when New York Attorney General Eliot Spitzer announced that his
office had uncovered a late-day trading scheme in which the bank had aided
Canary Capital Partners LLC and Canary Investment Management LLC.
The New York Attorney General’s announcement of civil
charges against Canary triggered investigations by the other agencies and the
action announced today by the OCC is the result of a coordinated investigation
by the OCC, the New York Attorney General, the Securities and Exchange
Commission and the Department of Labor.
“This action is an impressive example of cooperation between
state and federal government agencies,” said Comptroller of the Currency John D.
Hawke, Jr. “Everyone involved displayed a high degree of professionalism and
dedication, and acted in the best interests of the American people.”
On October 29, the OCC issued a Cease and Desist order
directing Security Trust to cease a number of illegal and abusive practices,
and ordered its controlling shareholder, Capital Management Investors Holdings,
Inc. (CMIH), Chicago, Illinois, to make an immediate capital infusion into the
bank and to pledge all of its financial resources to the bank as needed. The
funds from the bank and CMIH will be used to ensure that the bank can unwind
its affairs without undue disruption to its clients.
The October 29 enforcement action required Security Trust to
cease and desist from assisting or participating in a number of activities
involving late trading or market-timing. The prohibited activities include:
- Market-timing
or timing in connection with trades of mutual fund shares;
- Piggy-backing
or other activity designed to facilitate market-timing; and
- Late
trading in connection with trades of mutual fund shares.
The enforcement action also barred the bank from engaging in
business activities with any entities affiliated with the Canary hedge funds or
with Samaritan Asset Management.
In addition, CMIH was required to enter into a separate
Capital Assurances and Liquidity Maintenance Agreement with the bank. Under
that agreement, CMIH is required to:
- Maintain
the bank’s Tier 1 capital at $3 million;
- Ensure
that funds are available to meet the daily liquidity needs of the bank;
and
- Provide
a general pledge of its assets to the bank to ensure the terms of the
CALMA are met.
Under the October 29 order, CMIH reimbursed Security Trust
for all dividends it received from the bank after May, 2000. Security Trust is
prohibited under the order from paying any dividends or making any other
capital distributions, and from payment of any bonuses, commissions, severance
benefits, golden parachutes, and excessive compensation without prior review
and approval by the OCC.
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The OCC charters, regulates
and examines approximately 2,100 national banks and 52 federal branches of
foreign banks in the U.S., accounting for more than 55 percent of the
nation’s banking assets. Its mission is to ensure a safe and sound and
competitive national banking system that supports the citizens, communities
and economy of the United States.
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