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Wednesday, February 04, 2004

CIBC Trader Arrested

by: Nicole Halsey

Paul A. Flynn, a former trader at Canadian Imperial Bank of Commerce was charged with larceny and securities fraud by the New York Attorney General's office and the SEC yesterday, accused of financing illegal mutual fund trades, the New York Times reports.

Earlier this week the SEC announced an investigation into the Canadian bank to discern whether it financed improper mutual fund sales here.

The S.E.C. is seeking a fine and disgorgement of profits and possibly a permanent ban from the industry for Flynn. He was arrested at his Westerchester home yesterday, plead not guilty in court and bail was set at $750,000.

In an interview, Spitzer told The Times that the case against Flynn was "the first of several" to result from the regulators' inquiry into financing of illegal mutual fund trades.

According to Spitzer, Flynn, 46, a manager in the bank's New York office, financed late trades on behalf of Canary Capital Partners and Samaritan Asset Management.

Sources also told the paper that Flynn and other executives at C.I.B.C. arranged more than $1 billion in financings for trades in mutual funds by hedge funds. The financings were arranged from 2001 to 2003, the S.E.C. said.

According to SEC and Attorney General's Office, Flynn was aware that Security Trust was processing the hedge funds' trades after hours. Flynn was asked to leave the bank in December.

An internal memorandum written by Flynn in October 2001, described various ways that Security Trust concealed illegal trades made by the hedge funds that C.I.B.C. financed. Some of these methods included disguising the orders as being made by retirement or pension plans, or setting up multiple accounts on behalf of each hedge fund. In some cases, Security Trust allowed C.I.B.C. clients to trade as late as midnight and obtain the 4 p.m. closing price, Spitzer said. Some of the illegally traded funds include the MFS Emerging Growth Fund and the Artisan International Fund, Spitzer continued.

Sources told The Times that the bank will most likely setlle with regulators.  

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