2 executives admit guilt in fund case

Ex-CEO, president avoid jail in deal with Spitzer

August 31, 2005|By Susan Harrigan | Susan Harrigan,NEWSDAY

NEW YORK - In return for a promise of no jail time, two executives of a defunct retirement plan administrator pleaded guilty yesterday to criminal charges brought against them as part of New York State Attorney General Eliot Spitzer's probe of the mutual fund industry.

Grant D. Seeger, one-time chief executive of Security Trust Co. of Phoenix, and William A. Kenyon, the company's former president, each will receive five years' probation and a $50,000 fine under terms of an agreement with Spitzer's office, their lawyers said.

Lawyers for the two men said they thought Spitzer's willingness to reach a plea bargain may have been related to the June acquittal of Theodore C. Sihpol, a former Bank of America broker who was accused of 29 counts of larceny and other charges.

Sihpol allegedly helped a hedge fund make improper mutual fund trades. Sihpol's was the first criminal trial resulting from Spitzer's high-profile investigations of Wall Street.

Like the Sihpol case, the cases against Seeger and Kenyon included charges of helping hedge fund traders move rapidly into and out of mutual funds - a practice known as market timing - and place trades after markets were closed.

Susan R. Necheles, Seeger's lawyer, said she and Spitzer's office never discussed a plea agreement until after the Sihpol verdict.

"I think they came to realize there were fundamental flaws in their case," Necheles said. "The jury said so [in the Sihpol case]."

The cases of Seeger and Kenyon "were similar [to Sihpol's], and the charges and some of the witnesses were the same," said Henry E. Mazurek Jr., a lawyer representing Kenyon. "That probably played a part."

Spitzer's office had no comment on the lawyers' statements.

In 2003, the comptroller of the currency ordered the closure of Security Trust, making it the first corporate casualty in the mutual fund trading scandal. The company had 134 employees and administered $13 billion in assets for 2,300 pension plans and other trust accounts. The company processed mutual fund trades for retirement plans.

In a news release yesterday, Spitzer's office said it has obtained nine guilty pleas since the mutual fund investigation began two years ago and negotiated settlements that returned more than $3.1 billion to investors.

Seeger admitted in his plea that he had developed a procedure that allowed two hedge-fund clients to keep their market timing activities secret from mutual funds by attaching, or "piggy-backing," their trades to those of the trust company's retirement fund clients.

Kenyon said he oversaw development of the software that allowed the market timing activity.

The Sihpol jury deadlocked on four counts against the broker, and a retrial on those counts is scheduled for October.

Newsday is a Tribune Publishing newspaper.

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