“Swiss banking giant UBS AG disciplined 11 brokers, firing two, for allegedly violating mutual-fund trading rules, as regulators notified Invesco Funds Group that it also may face civil charges in the latest fallout from investigations of improper fund trading,” writes Randall Smith in today’s Wall Street Journal.

“In addition, Security Trust Co., a small Phoenix bank that allegedly helped a hedge fund make illegal after-hours trades, faces an expected order of dissolution by banking regulators Tuesday, and three of its former employees, including its founder, face criminal charges by New York State Attorney General Eliot Spitzer, people familiar with the matter said.”

“Zurich-based UBS, which acquired PaineWebber Group Inc. in 2000, then scrapped the brand name earlier this year, fired two brokers and suspended nine others. The firm disclosed the disciplinary actions against the 11 brokers to regulators Monday, and plans to announce them internally Tuesday. Its 8,200 brokers now work for UBS Financial Services Inc.”

” ‘As a result of an internal review, UBS has terminated two financial advisers and disciplined an additional nine financial advisers for breaching firm policy regarding market timing,’ UBS said in a statement. The sanctions against the UBS brokers relate to helping clients, including the investment pools known as hedge funds, make aggressive in-and-out mutual-fund trades known as timing trades, according to people familiar with the action.”

“While not by themselves illegal, market-timing trades can harm longer-term fund investors and violate mutual-fund prospectuses that spell out antitiming policies. The trades often are designed to take advantage of expected changes in fund prices. However, they aren’t as serious a violation as late trading, in which investors may be allowed to submit or cancel trades later than normal fund deadlines, getting a price set at 4 p.m. Eastern time that may be out of date based on subsequent events.”

“Such after-hours mutual-fund trades are central to the expected charges involving Security Trust. The Office of the Comptroller of the Currency, the federal banking regulator, plans to announce Tuesday that it will require the bank to begin the process of dissolution, according to people familiar with the matter. Typically, such administrative actions are taken with the cooperation of the bank involved. Security Trust also is expected to face civil charges by Mr. Spizer and the Securities and Exchange Commission, for allegedly playing an important role in helping a hedge fund make illegal after-hours trades, the people said.”

“Nancy Murphy, a spokeswoman for Security Trust, said she had no information about any impending charges or requirement that the bank dissolve. She said that the company has held a series of meetings with all three regulators in recent days.”

“Security Trust’s business involves combining the mutual-fund trades of retirement-plan participants for forwarding to mutual-fund concerns, where these numerous buy-and-sell orders are executed. The bank allegedly used its go-between position to give hedge fund Canary Capital Partners LLC the ability to make trades with hundreds of mutual funds at prices not available to other investors, according to exhibits released in early September when Mr. Spitzer settled civil charges with Canary and brought the fund-trading issues to light. Specifically, Mr. Spitzer alleged that, with the help of Security Trust, Canary was able to make trading decisions after 4 p.m. yet get the same-day share price because its orders were bundled with other legitimate orders being forwarded to fund firms by Security Trust.”

“Separately, United Kingdom-based Amvescap PLC said in a statement Monday that its Invesco unit has been notified by the SEC and Mr. Spitzer’s office that it may face civil-enforcement actions relating to its mutual-fund trading activities. In its statement, Amvescap said Invesco didn’t knowingly allow investors to ‘late trade’ its funds but allowed arrangements with ‘certain asset allocators and momentum investors’ that it believed wouldn’t adversely affect the funds.”