3 charged in fund scam

NEW YORK — Three former top executives at Security Trust Co. were charged Tuesday with acting as middlemen for hedge funds in an illegal mutual funds late-trading scheme, and authorities ordered the company to shut down.

Those charged with felonies by New York Attorney General Eliot Spitzer include the chief executive of the Phoenix-based company, which processes mutual fund trade orders for pension plans and retirement systems.

Several hedge funds made $85 million in profits from the scheme, which cost investors $1 million, authorities said. Security Trust made $5.8 million from the deals.

No charges were filed against Security Trust, Spitzer said, because the U.S. Treasury Department's Office of the Comptroller of Currency ordered Security Trust to be dissolved by March 31, the first company death sentence to result from the growing mutual funds investigation.

Messages seeking comment from the company were not returned.

Security Trust was a big player in its niche, but closing it would not have a major effect on its clients because they have time to find a replacement, experts said.

Spitzer, who first cracked the mutual fund scandal that has since widened to dozens of firms, said in an interview that charges could be filed against other companies and that he would "be very surprised if there are no additional criminal cases."

"The cases will continue," Spitzer said. "But more important, I think, will be the effort to reform mutual fund governance that will result from this."

Spitzer charged former Security Trust CEO Grant D. Seeger, 40, former president William A. Kenyon, 57, and former senior vice president of corporate services Nicole McDermott, 34, with grand larceny, falsifying business records and securities fraud.

The most serious charges carry prison terms of eight to 25 years.

The Securities and Exchange Commission simultaneously filed civil charges against the former executives and Security Trust.

An attorney for Seeger didn't respond to a request for comment. Telephone numbers for Kenyon and McDermott weren't immediately available.

Security Trust, which administers $13 billion in assets for 2,300 pension and retirement systems, is the latest financial institution to be accused of improper trading. Putnam Investments and Pilgrim Baxter also have been accused of wrongdoing, as have a handful of individuals.