The Securities and Exchange Commission has announced civil fraud charges against Phoenix, Arizona-based Security Trust Company, N.A. and its former chief executive officer, president, and senior vice president, for facilitating and participating in fraudulent mutual fund late trading and market timing schemes by a group of related hedge funds.

The SEC’s action was brought simultaneously with related actions by the New York Attorney General and the Office of the Comptroller of the Currency.

The SEC’s complaint charges Security Trust, the firm’s former chief executive officer, Grant Seeger; its former president, William Kenyon; and its former senior vice president for corporate services, Nicole McDermott.

The regulator alleges that from May 2000 to July 2003, Security Trust facilitated hundreds of mutual fund trades in nearly 400 different mutual funds by several hedge funds controlled by Edward Stern, known as the Canary Capital funds. The SEC adds that during the firm’s three-year relationship with the Canary hedge funds, Security Trust and the other defendants employed various methods to attempt to conceal the hedge funds’ market timing activities from mutual funds.

The SEC’s complaint alleges that Security Trust had a compensation arrangement with the hedge funds that included as large as a 1% custodial fee (the firm charged most of its clients a custodial fee of just .O10%) and a 4% profit sharing arrangement with respect to most of the hedge funds’ trades. Security Trust received approximately US$5.8 million in direct compensation from the hedge funds.

The SEC is seeking an accounting, disgorgement, and penalties from all of the defendants and a judgment of permanent injunction against Seeger, Kenyon, and McDermott.

Stephen Cutler, Director of the SEC’s Division of Enforcement, said, “Financial intermediaries who illegally permit their customers to trade mutual fund shares at the expense of long-term investors violate the securities laws and will be held accountable.” Cutler added, “Today’s important action was a product of swift investigation and effective cooperation by federal and state agencies alike.”